China Yangtze Power completed its acquisition of Peruvian power company, Luz Del Sur

from:China Three Gorges Corporationdate:2020-04-26

China Yangtze Power completed its acquisition of Peruvian power company, Luz Del Sur-1

On 24 April 2020, China Yangtze Power Co., Ltd ("CYPC"), a subsidiary of China Three Gorges Corporation (“CTG”), announced that it has successfully completed the acquisition of an 83.6% stake in Luz Del Sur (“LDS”) for the base purchase price of US$3.59 billion according to the Share Purchase Agreement announced on 30 September 2019.

LDS is the largest power company in Peru. It engages in power distribution and sales in Lima, Peru. LDS holds a 29% market share in Peru, making it the No.1 power distributor in the country. Besides power distribution business, LDS also owns 100MW operational hydro generation asset, with another 740MW high quality hydro assets in the pipeline. LDS receives regulatory return for the distribution business set by the government. Its assets and returns are denominated in US dollar. The Company owns the permanent concession right in Lima’s most economically developed area. All these factors support the stable performance and strong growth potential for LDS, rendering the Company as the most important and influential utility company in Peru.

This transaction represents the largest acquisition of overseas power distribution assets by a Chinese company and is one of the most prominent M&A transactions globally in recent years. Despite the impact of the Covid-19 outbreak, relevant parties across China, the United States and Peru coordinated seamlessly to obtain the required regulatory approvals and complete the transaction in an expeditious manner. The closing ceremony for the transaction was held through video conference across multiple locations. The successful completion of this transaction, on the backdrop of the current market turmoil, will contribute to global economic recovery, restore market confidence and send a positive signal to the global capital market. In addition, the transaction will further promote power distribution and clean energy development in Peru, support Peru's economic growth, employment, tax revenue, and technology advancement, as well as attract additional foreign investments to Peru.

Peru is applying for membership to the Organization for Economic Cooperation and Development (“OECD”). Recognized for its relatively low country risk, Peru is one of the best locations for investment in South America. During President Xi Jinping's state visit to Peru in November 2016, the two countries signed 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 <Agreement on Further Cooperation on Renewable Energy>. Subsequently, CTG initiated a series of investments in Peru, including the construction of San Gabán III hydroelectric plant in 2016 and its US$1.41 billion acquisition of Chaglla plant in 2018. Furthermore, the successful acquisition of the 83.64% stake in LDS by CYPC, China’s largest outbound M&A transaction announced since 2019 and the first ever material investment in Peruvian utility sector, is significant in promoting Chinese investments in Peru and nurturing stronger economic and trade ties between the two nations. As the result, this transaction has been highly endorsed by the Chinese and Peruvian governments.

As the largest listed hydropower company globally, CYPC maintains a robust financial position and strong cash flow. With its sovereign-level credit rating, CYPC enjoys low financing costs and strong investment and financing capabilities both in China and abroad. The acquisition of LDS is CYPC’s first acquisition of power distribution assets in an established overseas market, a move that is consistent with its prudent acquisition and investment strategies. This transaction is a key milestone in actively broadening the CYPC’s industry chain as well as achieving high quality and sustainable development by leveraging on both domestic and international markets and resources. The transaction also echoes China’s structural reform of the power sector. Through this acquisition, CYPC will accelerate its development of core distribution capability and progressively establish synergies across power generation, distribution and sales. This represents a leap-forward expansion of CYPC’s international footprint and an important step for CYPC to become a global champion.

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