China’s State Grid Makes a $3 Billion Push Into Latin America

(Bloomberg) -- State Grid Corp. of China will pay 2.57 billion euros ($3 billion) for an electricity network company in Chile, its first overseas deal in almost a year and a move that resumes its expansion abroad.

The Spanish natural gas and power company Naturgy Energy Group SA said it agreed to sell its 96% stake in Chilean electricity networks unit Compania General de Electricidad SA. The deal, reported earlier by Bloomberg News, will give the Chilean assets an enterprise value of 4.3 billion euros and Naturgy a 400 million-euro gain.

Chinese energy companies have strengthened their presence in Latin America in the last few of years with a wave of investments that extend to logistics, services and telecommunications companies. For State Grid, the world’s largest utility, it’s part of an effort to give the company a broader footprint outside China and access to natural resources in a region traditionally under U.S. commercial influence.

Utilities in China have in recent years followed the trail the nation’s oil companies opened in the early 2000s, when the likes of Sinopec, CNPC and Cnooc Ltd. started acquiring assets in Latin America. In the following decade of the 2010s, power companies started entering the region, most notably with transmission and generation activities in Brazil.

State Grid’s investments in Brazil total $12.4 billion, or 60% of the company investment’s outside China, a company official said last year.

Among its investments in the region, the Chinese company acquired the largest Brazilian private energy company, CPFL Energia SA, in 2017, and is responsible for building the transmission network for the giant hydroelectric plant Belo Monte. State Grid has also acquired Sempra Energy’s assets in Chile this year.

Naturgy Chairman Francisco Reynes has been under pressure from shareholders to deliver steady returns to the utility’s three largest investors -- Criteria Caixa SA, Global Infrastructure Partners and CVC Capital Partners -- which combined control about 65% of the company. Shares of Naturgy jumped as much as 6.5% to their highest level since March.

It’s the latest Spanish company to seek to cut exposure to Latin America to avoid suffering the impact of volatile economies and fluctuating exchange rates.

The divestment of Chilean assets would mark a U-turn for Naturgy, which agreed to acquire local utility Cia General de Electricidad SA for 2.6 billion euros in 2014, as it sought to increase its presence across the region. Naturgy also has operations in Brazil, Argentina and Peru, according to its website.

Citigroup advised Naturgy on the deal. Santander and BBVA advised State Grid.

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With assistance from Bloomberg