China Yangtze Power’s acquisition of Luz del Sur in Peru
The seed of this eye-catching project was planted when Chinese president Xi Jinping visited Peru in November 2016. During Xi’s visit, China Three Gorges Corp (CTG) signed an agreement with the Peruvian ministry of energy, agreeing to collaborate in the renewable energy industry. After that, the Chinese company began a series of investments in Peru, paving the way for this landmark acquisition.
Luz del Sur is the largest electricity company in Peru in terms of revenue. The firm has more than 1.1 million clients in southern Lima. China Yangtze Power is the country’s largest listed power company and is a subsidiary of CTG. The deal, which had been in the works since September 2019, was completed in April 2020 in the middle of the Covid-19 crisis.
China Yangtze Power paid $3.59 billion to buy 83.64% of Luz del Sur’s shares from Sempra Energy, a large utility company listed in the US.
The trade stood out not just because of its size but also because of its success in bringing banks from different regions and countries together. It is an example of how deals can be done during a pandemic. The whole share transfer process was completed virtually, via video conference calls.
The lending group to China Yangtze Power consisted of four banks, two from China, one from Japan and the other from Spain, together providing $4 billion. Bank of China led the lending effort. Citi acted as the exclusive financial adviser to China Yangtze Power.
The deal is the largest Chinese outbound acquisition since 2019 and the Chinese firm’s first investment in the power distribution industry outside China. It also brought the Chinese company into Latin America, potentially an important BRI region in future.
The project was heavily supported by the Chinese and Peruvian governments, which will, in turn, promote the investment collaboration between the two countries and attract additional foreign investments to Peru.