China’s State Grid Said in Talks to Buy CPFL Energia Stake

Updated on
  • Chinese power distributor has been making global acquisitions
  • Camargo Correa’s stake in CPFL Energia is about 23.6 percent

State Grid Corp. of China, the world’s largest utility, is in talks to buy a stake in Brazilian power distributor CPFL Energia SA, according to people with knowledge of the matter.

Government-owned State Grid is in discussions to purchase some or all of Camargo Correa SA’s holding in CPFL, one of the people said, asking not to be identified as the information is private. Camargo Correa owns about 23.6 percent of the company, according to CPFL’s website. Based on CPFL’s market value of about 20.8 billion reais ($6.2 billion), the entire stake could be valued at about $1.5 billion, not including any premium paid by the acquirer.

The Chinese power distributor has been making acquisitions globally as President Xi Jinping seeks to overhaul the country’s bloated state-owned businesses and allow market forces to play a bigger role. The company isn’t limited in how much it can spend to expand, State Grid’s then-chairman, Liu Zhenya, said in a March interview.

Discussions are still ongoing and may not result in a transaction, the people said. State Grid didn’t immediately respond to faxed questions seeking comment. A representative for CPFL declined to comment.

Overseas Drive

Camargo Correa hasn’t made any decision on its stake in CPFL, according to a statement Wednesday. The Brazilian builder is always evaluating strategic opportunities and is regularly in contact with potential investors, it said in the statement. 

Any deal would add to the $144.3 billion in overseas acquisitions by Chinese companies this year, data compiled by Bloomberg show. State Grid was among suitors planning to submit bids for Australian power network Ausgrid, which could fetch more than A$10 billion ($7.5 billion), people with knowledge of the matter said in February.

State Grid, which distributes electricity to 1.1 billion people, had a profit of 86.5 billion yuan ($13.1 billion) on a revenue of 2.08 trillion yuan in 2015, its website shows. The company was named the preferred bidder for a 14 percent stake in Belgian electricity and gas distribution system operator Eandis Assets earlier this month, according to a press release.

State Grid already operates in Brazil, running about 6,000 kilometers (3,729 miles) of transmission lines, according to its website. In April, the company won the largest portion of an auction of transmission lines in the country, gaining a total of 1,005 kilometers.

Transmission Lines

The company is interested in Brazil’s power-generation and distribution assets, Ramon Haddad, vice president for operations at State Grid’s local unit, said in July last year. At the time, State Grid had just won its second contract to build power lines that will link the world’s third-biggest hydroelectric dam Belo Monte to Brazil’s largest consumer market.

Brazilian builder Camargo Correa is selling assets as it pays fines related to the country’s largest-ever corruption investigation that has engulfed state-run oil company Petroleo Brasileiro SA. Camargo’s construction unit agreed last year to pay a record 104 million reais in a settlement with Brazil’s antitrust regulator and reached a leniency agreement with prosecutors to pay back 700 million reais to public coffers.

CPFL Energia is in the middle of a restructuring and management transition. The company last week bought AES Sul from AES Corp. in Brazil for $464 million. Its new chief executive officer, Andre Dorf, will start next month and has said he will focus on reducing leverage. CPFL Energia’s net debt in the fourth quarter was 12.2 billion reais, about 3.4 times its earnings before interest, taxes, depreciation and amortization.

— With assistance by Vanessa Dezem, Vinicy Chan, and Steven Yang

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