Chinese M&A activity in Latin America accelerated in 2020 against a backdrop of COVID-19 turbulence, Boston University's Global Development Policy Center said in a bulletin.

Mergers and acquisitions reached US$7bn, up from US$4.3bn recorded in 2019. Electric power infrastructure accounted for US$6.8bn of last year's total. 

"While several of these large deals involved western investors selling off their LAC [Latin America and Caribbean] assets, they were all first announced in the fall of 2019, so they are not symptoms of a COVID-19 related panic among multinational corporations," the report said. "Most of these deals involve sales by US based Sempra Energy, which announced in 2019 that it intended to sell off its South American assets to concentrate on its home market of North America."

Deals finalized included China Three Gorges' purchase of Sempra's 83.6% stake in Peruvian power company Luz del Sur for US$4.1bn.

Late last year a further deal was announced but remains pending: Spanish player Naturgy's sale of Chilean power utility CGE to China's State Grid for US$5.0bn. Some Chilean lawmakers have said they are concerned about the acquisition of strategic assets by firms from other countries. 

Against this backdrop of recovering M&A activity, announcements of greenfield foreign direct investment fell steeply, the report said.

"Infrastructure continues to dominate both types of investment deals, particularly in the electricity sector," the report said.

BNamericas was told previously by Latin America-China relations expert Margaret Myers that the Asian giant would take a strategic approach to regional investment.

Chinese M&A in Latin America by year (Source: Global Development Policy Center using Dealogic data)

2015
Total M&A: US$4.7bn
 Infra: US$4.4bn

2016:
Total M&A: US$3.8bn
 Infra: US$1.3bn

2017
Total M&A: US$17.5bn
 Infra: $14.5bn

2018
Total M&A: US$9.8bn
 Infra: US$4.7bn

2019
Total M&A: US$4.3bn
 Infra: US$2.4bn

2020
Total M&A: U$7.0bn
 Infra: US$6.8bn

On the development finance front, major players China Development Bank and China Exim Bank did not sign any new financing commitments with Latin American governments last year. The center and US think-tank the Inter-American Dialogue track China-Latin America finance. 

Lending from these two banks has been trending down since 2015. China has traditionally lent to Ecuador, Venezuela and Argentina – all currently in the economic doldrums.

OUTLOOK

In terms of overall dealmaking in Latin America, the number of transactions was down 28.8% year-on-year in January to 121, according to data from research firm Transactional Track Record. But aggregate reported value was up, 177% to US$11.3bn, driven by private equity (US$5.48bn) and asset acquisition (US$4.03bn) deals. The bulk, by value, corresponded to Brazil, which saw growth of 372%. The outlook for dealmaking in Latin America this year partly hinges on the success of vaccine deployment programs, BNamericas was told.

Meanwhile, the bulletin said, Chinese official finance to Latin American governments is projected to bounce back this year, with a likely driver being financing for Chinese COVID-19 vaccines.

Investment may rebound in 2021 as well, the Boston University center said, citing as an example a US$30bn package of investment plans spanning 15 infrastructure and energy projects in Argentina. "Several of the projects associated with this package have been frequent features of Chinese cooperation in the past, including the San Martín, Roca, and Belgrano Cargas rail lines. Over the coming months these projects may return to the fore," it said.

Source: Business News Americas / BN Americas - Chile