Category: Regions

Chinese companies are surveying the power generation and transmission in LatAm, with Sinohydro and China Machine New Energy Corporation (CMNEC) both showing significant interest in several countries. Costa Rica, Guatemala, Honduras, Venezuela and Chile are all countries where the latter has direct investments in energy plants, or is in talks with government representatives about wind, hydro or coal fire plants. Its most recent investment was in a coal fire plant in Guatemala. “We have also been invited to participate in wind and coal fire projects by the Dominican Republic,” says Wang Wei, general manager of the overseas department at CMNEC. “Central American countries are eager to invite us, but the next step is to invest in larger economies like Brazil and Mexico, which we see as promising and offering even higher profits,” says Wang. However, she adds that countries like Honduras and Guatemala have offered significant profits, which she puts down to the countries being not very developed and more in urgent need of investment. Federico Restrepo, CEO of Colombia’s EPM says stable and transparent rules, as well as open and public bids for equipment and the construction of projects, would make Colombia an attractive option for investment. He adds that EPM in particular is open to negotiating conditions for capital investment, though he admits that one difficulty is receiving government guarantees, considered necessary by many Chinese companies. On necessary conditions for investment, Sinohydro’s Xin Zongyi says stable economic growth is the main priority, while Wang adds that efficiency, political stability and attractive revenues, in addition to economic growth, are necessary. “Security is part of our considerations, but it is not a priority,” she adds. Sinohydro is confident in its ability to fund its investments. “We have very strong support from Chinese banks, so liquidity is not a big problem for us,” says Xin. CMNEC is looking to launch its IPO, via Morgan Stan

LatAm corporates and finance ministries expect commercial relationships with China to grow and strengthen over the coming years. However, overcoming cultural differences will be key to both sides getting the most from the relationship, say representatives of both. Pemex recently signed a contract with Sinopec to start increasing shipments to China, as well as benefit from Chinese technology for oil exploration. “We expect the commercial relationship to grow significantly over the next 5 years, and predict at least a doubling in the oil supply to Sinopec, currently 12,000 barrels per day, during this period,” says Pemex CFO Carlos Trevino Medina. LatAm has much to offer Chinese investors, says Hugo Sarmiento, CFO of CAF. “LatAm has a resilient economic environment and LatAm corporates are doing very well, and are increasing in credit worthiness,” he says. “In terms of diversification and value they offer great opportunities,” he adds. The ease with which foreign investors can access domestic markets is highlighted by the fact that 25% of Mexico’s domestic debt is held by foreign investors, says Octavio Lara, deputy director of debt issuance for Mexico. He adds that Mexico is about to issue its second Samurai bond to maintain a liquid benchmark in Asia. Lara is also optimistic that Asian participation in the peso market – which includes Hong Kong, Singapore, China and Japan – will continue to increase. Brazil’s BNDES’s long-term and stable cost of funding, with debt lines from the national treasury, make it particularly attractive to Chinese investors, who have a preference for government involvement, says Andre Carvalhal, head of the international market department at BNDES. LatAm officials expect growing interest from Chinese investors in signing long-term supply contracts for key industries such as agriculture, energy and fisheries. For infrastructure, a key challenge is the fact that Chinese investors believe investment would be similar way to in Africa, allowing

While FDI and trade between LatAm and China has increased 10x over the last 6 years, there have only just started to be the first signs of Chinese portfolio investments, says Aleaxander Gorra, head of international platform for BNY Mellon ARX Investimentos. “It is only in the first 9 months of this year that we have seen this, though expect this to increase significantly in the next 12 to 18 months,” he says. However, Chinese investors prefer LatAm bonds to equity portfolios, according to Aaron Low, principal of Lumen Advisors. “Chinese portfolio investors are still very much focused on Chinese and Asian stocks, though they have seen increasing value in bond portfolios,” he says. “The challenge is to also show the opportunities offered by domestic equity markets,” he adds. Paulo Olivera, CEO of Brain, says Brazil’s stock exchange should grow significantly, with many new listings expected in new sectors, such as sustainability, providing significant opportunities. Changes in China’s domestic economy might also lead to an increased focus in different types of overseas investment. “China is moving from a traditional to a new economy,” says Henry Zhao, CEO of Harvest Fund Management. “This will lead to changes in the way it invests, and lead to an increase in the types of products it invests in” he adds. They were speaking at the LatinFinance Latin America China Investors Forum last week in Beijing.

Despite all the talk about significant capital flow from China to LatAm, bankers, issuers and investors admit that the actual business being done remains relatively minor. And there is still much work to be done in educating Chinese investors about the realities of LatAm economics and politics. “We are still not familiar with local currency markets,” says Sun Xiaofan, chief dealer at Bank of China. “We really need to co-operate with local banks to get a better understanding of the markets, as we are not familiar with local currency tools either.” Sun adds that he would expect LatAm banks to set up offices in Asia to help investors there better understand their markets. Despite the challenges, He Ludwig, head of public markets investment department at China Investment Corporation, sees significant potential for Chinese investors to raise exposure to LatAm financial markets. “We see Latin America as a very important market for asset allocation, and expect to give more weighting to EM investments, including LatAm, as in the next 5-10 years we predict very low growth and returns in the developed world,” says He, “We can see good returns in LatAm local currency markets, such as Brazil’s bond market, and so see investing there as a good opportunity,” he adds. However, He also points out that cultural and language barriers still need to be overcome. They were speaking at the LatinFinance Latin America China Investors Forum last week in Beijing.