Winner: State Grid International Acquisition of Naturgy Stake in CGE
China’s State Grid International Development Company expanded its global reach last year, sealing a deal to acquire Chile’s largest power utility from Spain’s Naturgy.
A deal involving companies from three countries, as well as regulatory agencies and banks in those countries and more, was not only extremely complex, but also included a number of firsts. It won State Grid the Cross-Border M&A Deal of the Year award.
The acquisition was initially announced in November 2020, with State Grid, or SGID, agreeing to buy nearly all the shares from Chile’s CGE power company from the Spaniards. The SGID had purchased Chilquinta, Chile’s third largest electricity distribution company, two years earlier.
The combined assets made it the dominant player. CGE-Chilquinta gave SGID a 54% market share in the power distribution market, and 25% in the transmission sector. The agreement required regulatory approval in Chile and China, which came at the end of last May. The deal was concluded in July 2021, with the Chinese company ending up 97.1% in CGE.
The transaction was the largest deal in the energy sector in Latin America outside of Brazil. It was also the largest cross-border M&A involving an Asian corporate in the region. In yet another first, the deal was in euros. Power deals in Latin America are almost always in US dollars. The final total was equivalent to $5.1 billion.
“This acquisition represents an additional landmark achievement for SGID in its pursuit of its international investment initiative and a further testimony to the company’s strategic commitment to Chile’s energy and power market, following the acquisition of Chilquinta,” said Santander, which advised SGID, in a case study.
In late January, Fitch upgraded its rating for CGE to AA- from A+, with a stable outlook. The upgrade, according to Fitch, was based on SGID’s cash support agreement of €350 million ($400 million) for its new Chilean asset.
SGID’s consolidation in Chile is part of an increasing strategy by Chinese companies to increase their footprint as part of the broader Belt and Road Initiative. In addition to Chile, the company has several major assets in Brazil, including a majority stake in CPFL Energia, Brazil’s largest private utility company.
Another Chinese company, China Three Gorges, acquired Luz del Sur, one of the primary power distribution companies in neighboring Peru in 2020. It also owns power generating plants in Peru. – LF