Latin America Emerges as China’s Favorite Hunting Ground for M&A

(Bloomberg) -- In a challenging year for Chinese companies pursuing acquisitions abroad, Latin America emerged as a region where they were able to make some corporate marriages work.

Overseas acquisitions by Chinese firms are heading for their fourth consecutive yearly decline, with a $31.1 billion tally that’s the lowest since 2007, according to data compiled by Bloomberg. Transactions targeting Latin America totaled $7.7 billion, more than Europe and North America combined.

Chinese suitors have met heightened scrutiny in Europe and the U.S. this year as the pandemic left their strategic industries vulnerable for hostile takeovers, adding to national security concerns. Buyers from Asia’s largest economy then turned their focus on Latin America, where years of political and social uncertainty have prompted some other foreign firms to leave.

“That’s opened a once-in-a-lifetime window of opportunity for long-term strategic investors from China,” said Alfredo Arahuetes, an international economics professor at Madrid’s Comillas Pontifical University. “Chinese buyers are finding good assets at pretty good prices. And this trend will likely continue over the coming years.”

Last month, State Grid Corp. of China agreed to buy control of a power network company in Chile. The deal, which valued the target at 4.3 billion euros ($5.2 billion) including debt, was the year’s largest Chinese outbound acquisition. State Grid also completed its purchase of Sempra Energy’s assets in Chile earlier this year.

In Mexico, China’s State Power Investment Corp. bought the nation’s largest independent renewable energy company, Zuma Energia. Another government-owned energy giant, China Three Gorges Corp., previously acquired Sempra’s businesses in Peru for almost $3.6 billion.

Suitors from China have the firepower to invest in sizable Latin American firms that require big amounts of capital expenditure, according to Antony Hung, head of Asia Pacific at Banco Santander SA.

“Chinese companies see M&A in Latin America as just the beginning of a much bigger process,” Hung said. “The real end game is to invest in those assets and boost value for all stakeholders in the long term.”

Trophy Assets

In Europe, Chinese buyers only announced $3.5 billion worth of acquisitions this year, a 71% plunge from a year ago, data compiled by Bloomberg show. They’ve found Spain and Portugal among the few markets that still welcome their investments. Three Gorges in August bought 13 Spanish solar park assets owned by X-Elio Energy SL.

“The outlook for China outbound deals in Spain, Portugal and Latin America remains positive for 2021 and beyond​,” said Megan Peng, head of Asia corporate finance at Banco Bilbao Vizcaya Argentaria SA. “There are still interesting companies up for grabs including some big trophy assets.”

Chinese companies grappling with geopolitical tensions overseas are also feeling pressure from Beijing to dial back their ambitions. Government authorities have cracked down on certain types of deals on concerns about capital outflows and excessive corporate debt loads.

Indeed, the volume of China’s outbound acquisitions this year is a far cry from the peak in 2016, when China National Chemical Corp. agreed to buy Swiss agrochemical maker Syngenta AG for $43 billion. Conglomerates such as HNA Group Co. and Anbang Insurance Group Co. were among those ended up unwinding their portfolios under government supervision, after paying top dollars for everything from ultra-luxury properties to shareholdings in firms such as Deutsche Bank AG.

“Chinese investors have now become very savvy acquirers,” said Arahuetes of Comillas Pontifical University. “They no longer buy assets that make no strategic sense at crazy high multiples. They’re now focused on building their international footprint in certain markets including Latin America and Spain, and in key industries such as energy and infrastructure.”

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