from：China Electricity Councildate：2019-10-14
On 30 September 2019, China Yangtze Power Co., Ltd ("CYPC"), a subsidiary of China Three Gorges Corporation ("CTG"), announced that, CYPC has entered into a share purchase agreement with Sempra Energy for acquiring its 83.6% stake in Luz Del Sur ("LDS"), a Peruvian distribution company.
Sempra is a large-scale utility listed in the United States (NYSE: SRE), mainly engaged in oil and gas, power transmission and distribution businesses. LDS is the largest listed power company in Peru, mainly engaged in power distribution and sales in Lima, Peru. As of 2018, LDS serves around 1.13 million customers and its annual energy distributed stands at about 9.1 billion kWh, which accounts for 29% of the market of Peru, making it the No.1 power distributor in the country. In addition to power distribution, LDS also owns 100MW operational hydro generation asset, with another 740MW hydro in the pipeline. With a leading position in terms of operational performance, LDS boasts assets of good quality. The sector LDS is in, power distribution and sales, is regulated by the government. Besides a reasonable investment return rate approved by the government and assets and returns denominated in USD, LDS runs in a permanent concession area in the most economically developed region in capital Lima. With stable operational performance and strong momentum for future growth, LDS is clearly a utility in Peru with considerable market influence. Also, the transaction can create great synergies with CTG's existing hydropower assets in Peru.
According to public information, Sempra Energy officially announced the plan to sale its shares in March this year, which has attracted attention from international industrial and financial investors from China, Italy and Canada. According to the announcement of CYPC, the consideration for the acquisition of 83.6% stake in LDS stands at USD $3.59 billion, a fairly better price among comparable transactions in recent years. In terms of contract value, this deal is also the largest overseas M&A transaction by a Chinese company in 2019 so far.
Thanks to its sound business environment, well-established market framework and well-performing macroeconomic indicators, Peru is recognized as one of the countries in South America with the lowest country risks. Currently, Peru is applying for the admission into the Organization for Economic Cooperation and Development (OECD), the success of which will make Peru the third OECD member in the region. Since China and Peru established the comprehensive strategic partnership, bilateral trade has been growing ever closer, with China having become the biggest trade partner, the biggest export destination and the largest source of imports for Peru; and more Chinese companies are seeking investment and development opportunities in Peru. During President Xi Jinping's state visit in Peru in November 2016, the two countries entered into the Memorandum of the Mechanism for Development and Collaboration of the Energy Sector, and CTG and the Ministry of Energy and Mines of Peru signed the Memorandum of Understanding for Enhancing Cooperation in the Energy Sector. The transaction is one step further for the implementation of the agreement signed by CTG and Peruvian ministry, and reinforces the comprehensive strategic partnership between the two countries.
As the largest listed hydropower company in the world, CYPC boasts a robust financial standing, abundant cash flow and an international sovereign credit rating, which contributes to its low financing costs and strong investment and financing capabilities both at home and abroad. CYPC's acquisition of LDS is its first ever purchase of power distribution assets from a mature market overseas, a move that's consistent with its prudent practices in investment and M&A in the past, and an important step for its high quality and sustainable development.
Upon acquisition of distribution assets from developed market overseas, CYPC will stride faster in developing core capabilities of its distribution business, and gradually achieve synergies among power generation, distribution and sales businesses throughout the industry chain. In addition, the purchase enables a leap-forward growth of its international business and thus plays an important role in CTG's drive to become a world-class enterprise.
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