(Bloomberg) -- When China Three Gorges Corp. offered more than $10 billion last year to take over Portugal’s biggest power utility, bankers rejoiced that the flow of Chinese outbound acquisitions had started up again.
It was only the third megadeal out of China since the heady days of 2016, when $239 billion of foreign purchases were announced. The fact that EDP-Energias de Portugal SA was being pursued by Three Gorges, a state-owned firm, was taken as a sign that Beijing would bless selective strategic deals while reining in inexperienced companies’ more frothy purchases.
Fast forward nearly a year, and things aren’t looking as rosy. Three Gorges is now planning to scale back the EDP offer and is evaluating smaller alternative transactions amid concerns about political hurdles and valuation, people familiar with the matter said last week. It also didn’t help that the Chinese government changed Three Gorges’s senior leadership while the deal was ongoing.
The pullback threatens to further dampen sentiment at a time when the region’s investment bankers are already feeling the pinch from slower deal activity. Acquisitions by Asia Pacific companies have fallen 30 percent this year, while fundraising from equity offerings on exchanges in the region has dropped 48 percent to the lowest level in a decade, data compiled by Bloomberg show.
Three Gorges is now exploring potential deals that would face less regulatory opposition while still boosting its exposure to EDP’s international operations, the people said. Investments or joint ventures involving EDP’s Brazilian assets are among the possibilities being considered, according to the people, who asked not to be identified discussing private information.
Pursuing a smaller transaction could allow Three Gorges to walk away from the full takeover offer while still gaining some assets, blunting potential criticism about a failed deal pursuit. Representatives for Three Gorges and EDP declined to comment.
Increased political and regulatory scrutiny of Chinese investment in the U.S., as well as a lingering trade war, have contributed to the lack of progress on the deal, Bloomberg News reported in November. European officials may also raise concerns about China’s growing influence over Portugal’s power generator and grids, people with knowledge of the matter said at the time.
The trigger for the final collapse of Three Gorges’s original offer could come next week. Portugal’s securities regulator said on Friday that the bid may end if EDP’s annual shareholder meeting April 24 rejects a proposal to remove a cap on voting rights, which was a condition set by Three Gorges.
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