Deal may be largest Chinese investment in the nation
State Grid Corp (SGCC) of China is in negotiations for a takeover of Brazilian power distributor CPFL Energia SA, following a stake buy in July, The Wall Street Journal (WSJ) reported on Tuesday.
Experts said Wednesday that the potential deal could be complementary to SGCC's existing businesses in Brazil.
On July 1, China's State Grid International Development, a subsidiary of SGCC, agreed to buy Brazilian conglomerate Camargo Correa SA's 23.6 percent stake in CPFL for 5.9 billion reais ($1.84 billion).
Camargo Correa SA is a privately held Brazilian engineering, real estate, textile and shipbuilding company.
The WSJ report cited sources close to the deal as saying that SGCC is courting shareholders of CPFL Energia SA and a listed subsidiary, and after securing large stakes, SGCC will make a full offer to acquire the company.
With the deal valued at $13 billion, which includes debt of about $5.8 billion owned by CPFL, the WSJ report said the deal could become the biggest Chinese investment in Brazil.
State Grid is the world's largest utility by revenue, distributing electricity to 1.1 billion people.
The company had a profit of 86.5 billion yuan ($13.1 billion) on a revenue of 2.08 trillion yuan in 2015, its website shows.
Li Li, director of research at Shanghai-based consulting firm ICIS China, told the Global Times on Wednesday that SGCC might see the current timing as opportune and believe the target assets are of value.
CPFL Energia is undergoing -restructuring and management transition and has put a priority on reducing leverage. Its net debt in the fourth quarter of 2015 was about 3.4 times its earnings before interest, taxes, depreciation and amortization, according to Bloomberg in June.
"The fact that many of the latest -developments of the business talks are emerging from sources at foreign -companies shows that they realize the potential Chinese buyer has a deep purse and wants to seize the opportunity," Li said.
Such a purchase could also be complementary to SGCC's existing investments in Brazil.
SGCC has a record of striking investment deals globally, as its former chairman Liu Zhenya envisages a globally connected energy network that uses different kinds of energy and is transmitted via smart grids and ultra-high-voltage power transmission technologies.
The company has invested in the power grid of the Philippines and Italian energy grid holding company CDP Reti.
In July 2015, an SGCC subsidiary won a contract to build a giant -transmission line for the Belo Monte, one of the world's largest hydroelectric projects, which is located deep in the Amazon rainforest.
The company has committed to finish building in 2019 and to begin operating the power line in 2020. It will maintain the concession for 30 years.
