China Yangtze Power International (Hongkong) has agreed to pay US$3.59 billion for Peruvian elecricity assets including an 83.6% stake in Luz del Sur, the country’s biggest electricity company.
The seller is San Diego-based Sempra Energy, which is listed on the New York Stock Exchange. It announced the all-cash deal on September 30. The US$3.59 billion price tag is subject to closing adjustments for working capital and net indebtedness.
The transaction will also include Sempra Energy's interest in Tecsur SA, which provides electric construction and infrastructure services to Luz del Sur and third parties, and Inland Energy SAC, Luz del Sur's generation business.
Luz del Sur serves the southern region of the Peruvian capital city Lima, and is the largest electricity company in the country. Peru has a population of 32 million.
The sale is expected to be completed in the first quarter of 2020, subject to customary closing conditions, including approval by the Peruvian anti-trust authority and the Bermuda Monetary Authority.
Beijing-based China Yangtze Power Co is the largest publicly listed power company in China with a market capitalization of approximately US$58 billion. It is listed on the Shanghai Stock Exchange. The China Yangtze Power International Hong Kong subsidiary is commonly used for international debt issuance and acquisitions.
China Yangtze Power Co engages in electric power production, technological consultation of electric power generation, and selected distribution services. The parent company is state-owned China Three Gorges.
In addition to the sale of Luz del Sur, Sempra Energy simultaneously announced that its subsidiary Sempra LNG has entered into a memorandum of understanding with China Three Gorges regarding potential cooperation in supplying liquefied natural gas (LNG) to support demand growth in China, including the growth of natural gas power generation. Ultimate participation remains subject to finalization of a definitive agreement.
"This initial agreement with CTG represents an opportunity to support strong growth in natural gas demand in Asia, with future expansions of our LNG projects right here in North America," comments Jeffrey W. Martin, chairman and CEO of Sempra Energy.
Sempra said that the proceeds from the Peru transaction will be used to strengthen the balance sheet and meet the growing capital needs of its core utilities in California and Texas. BofA Merrill Lynch and Lazard are serving as financial advisors to Sempra Energy on the sale, and White & Case is serving as legal advisor.
An active sales process continues for Sempra Energy's electric businesses in Chile, including the company's 100% stake in Chilquinta Energia S.A. and Tecnored S.A. The company expects to announce an agreement in the fourth quarter of this year.
Chinese investment in South America under the Belt & Road Initiative has been heavily weighted towards power generation, transmission and distibution.
A consortium led by China Three Gorges already owns the 456MW Chaglla hydroelectric plant in Peru.
The biggest deals have come in Brazil, South America’s largest country with a population of 210 million.
Last month, State Grid Brazil Holding completed the tests for the world’s longest 800 kV transmission line. The 2,539-kilometre-line was budgeted at R$8.77 billion (US$2.19 billion). It begins in Xingu, Para and goes through Tocantins, Goias, Minas Gerais and eventually reaches the municipality of Paracambi in Rio de Janeiro.
State Grid Corporation of China is also the controlling shareholder of CPFL Energia, the third-largest utility in Brazil, involved in generation and distribution.
China Three Gorges has also chosen Brazil as a priority country in its international growth strategy. Since it arrived in the country in 2013, it has made strategic alliances with established local companies. CTG Brasil is currently the second-largest privately-owned power generator in the country.