M&A | The gold medal for buying up Brazilian assets goes to China inc.

The sun rises over Guanabara bay and the Sugarloaf mountain in Rio de Janeiro

China may be lagging behind in the medal count during this year’s Olympic games in Rio de Janeiro, but it’s winning the competition for Brazilian assets.
No country has done more acquisitions in Brazil this year than China, which grabbed the No. 1 ranking by deal value for the first time on record, according to data compiled by Bloomberg. Chinese firms have announced USD4 billion of purchases in Brazil so far this year, the highest total for a comparable period since 2010.
Latin America’s biggest economy has turned into a fertile hunting ground for Chinese acquirers, as Brazilian firms look for suitors to help them ride out the nation’s longest recession in decades. A 50 percent drop in the real over the past five years has increased Chinese firms’ buying power, while political opposition to takeovers is proving a smaller hurdle than in the U.S. and U.K.
“Brazil has been welcoming towards Chinese investment given the economic challenges the country is facing,” Joseph Gallagher, head of mergers and acquisitions for Asia Pacific at Credit Suisse Group AG, said in an interview in Hong Kong. “Chinese appetite for Brazilian assets will continue to be high.”
Debt reduction has been a big motivation for sellers. Camargo Correa SA, a Sao Paulo-based builder that’s been trying to cut leverage, agreed in July to sell its entire 24 percent stake in CPFL Energia SA to State Grid Corp. of China. Vale SA, the iron-ore miner shedding assets to better manage its debt load, agreed to sell three vessels to a Chinese group for $269 million last month.
“Many Brazilian companies are being forced to sell very attractive assets at good prices to reduce their debt,” said Renato Ejnisman, the head of investment banking at Banco Bradesco SA in Sao Paulo.
For Chinese buyers faced with pricey equity valuations at home, companies in Brazil look like bargains. About 11 percent of the nation’s 473 public companies trade at less than half book value, data compiled by Bloomberg show. The real’s slump to beyond 4 per dollar made Brazilian assets look especially attractive earlier this year, though the currency has since recovered by more than 30 percent amid a broader rally in emerging markets.
While Brazil’s economic downturn has been painful, Chinese acquirers see the country as a long-term growth market, in part because of its 200 million-strong population, according to Brian Gu, co-head of Asia Pacific mergers and acquisitions at JPMorgan Chase & Co.
The nation’s power and utilities sector is particularly attractive for Chinese buyers seeking to replicate the growth they’ve enjoyed at home for the last decade, said Helen Li, head of Asia power and utilities at Bank of America Merrill Lynch. Brazil has a relaxed process for evaluating takeovers relative to the U.S, Europe and Australia, where some Chinese suitors have struggled to win government approval, according to Li.
President Xi Jinping said last year China’s trade with Latin America would rise to $500 billion in the next decade. China set up a $10 billion investment fund to support its industrial cooperation with Latin America, the official Xinhua News Agency reported in September last year.
Even after this year’s spate of acquisitions, there will be additional opportunities for Chinese purchases as European and North American firms consider exiting Brazil, said Zilong Wang, head of M&A at China International Capital Corp., the country’s most active domestic adviser this year. Vinicy Chan, Bloomberg