State Grid Powers Into Brazil 中国国家电网伸向巴西
We’ve seen lots of Chinese resource companies snapping up overseas assets this past year at low prices, and now there’s an interesting new wrinkle to this global bargain hunting spree with word that State Grid, China’s largest power grid operator, will buy some assets in Brazil. At the very macro level, this deal is quite interesting because State Grid’s purchase of Brazilian power transmission assets from Spain’s ACS (Madrid: ACS) looks like a sign of things to come in terms of cross-border M&A. That trend would see more and more cash-rich Chinese firms from the infrastructure space looking for global bargains from debt-laden US and especially European firms seeking to raise cash amid economic slowdowns in their home markets. From a company-specific perspective, the crisis could also provide a nice opportunity for the Chinese acquirers, which may be able to finally purchase some decent global assets in this upcoming round of global M&A. That’s an important distinction from previous M&A, which has often seen Chinese firms buy global bargains with major operational problems, often leading to big losses for the Chinese acquirers. Let’s look quickly at this individual deal, which will have State Grid purchasing Brazilian assets of Actividades de Construcción y Servicios SA (ACS) for $531 million and the assumption of $411 million in debt. (English article) This deal looks like the largest in a recent series of global acquisitions for State Grid, which has purchased or 3 other assets in Portugal, the Philippines and Brazil. The main driver for ACS is probably a need to raise cash as Spain’s economy takes one of the biggest hits in the ongoing Eurozone debt crisis. The move looks like a smart one for State Grid, as Brazil, one of the world’s 5 BRICS economies, is unlikely to see the same kind of sluggish growth now being faced by the US and much of Europe, and thus these newly purchased assets should yield decent returns. This deal could also become a template for other Chinese companies, who could look to buy up other non-core assets in developing markets from their debt-heavy US and European owners. Sectors that look especially suitable for this kind of M&A include not only resources and power generation, but also other big infrastructure areas like telecoms. Companies like Spain’s Telefonica (Mardid: TEF) own extensive assets in developing markets, which they may start looking to sell to comanaies like China Mobile (HKEx: 941; NYSE: CHL) or China Telecom (HKEx: 728; NYSE: CHA), which have made recent hints of plans for more aggressive global expansion. We could also see other power companies enter the mix, such as Huaneng (HKEx: 902; Shanghai: 600011) and Datang (HKEx: 991; Shanghai: 601991), again seeking to leverage their expertise in developing markets to expand abroad. Look for a growing number of these deals in the next year, including some interesting ones in the $1 billion-plus range.
Bottom line: State Grid’s purchase of power assets in Brazil marks the latest deal in a new trend that will see Chinese infrastructure firms looking for bargains from debt-heavy Western peers.
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◙ Int’l Miners Dig For China Dollars 外资希望搭载中国矿企全球并购的顺风车
◙ China’s Resource Binge: Bubble Building 中国资源并购潮：酝酿泡沫
◙ Powerless AES Looks to Bow From China 爱依斯出售中国发电业务 凸显行业严酷形势
