China power giants on buying spree abroad

China's state-owned power companies are on a buying spree abroad.

A quarter of Portugal's power grid operator, REN, will be sold to China's State Grid Corp for $507.82 million.

The slae is part of a wave of privatizations Portugal will carry out under the terms of its 78-billion-euro European Union/International Monetary Fund bailout loan.

The State Grid News, the Chinese company's official publication, said the need by struggling economies to sell off state-owned assets "created entry opportunities" for China, and the deal would provide a springboard into other markets.

On the other hand, the China Three Gorges Project Corp recently agreed to acquire a 21 percent stake in the Energias de Portugal utility for $3.54 billion. 

"This is in line with the government's 'internationalization strategy' for state-owned enterprises to 'venture out'," a senior power industry executive told Reuters.

China's foray into the overseas power sector began in 2009 when the Philippines sold a 25-year license to a consortium led by China State Grid to run its power network. At $3.95 billion, it was the Southeast Asian nation's biggest privatization deal.

The State Grid, China's biggest electrical utility, has already bought seven grid operators in Brazil for $1.7 billion.

Three Gorges chairman Cao Guangjing has said his company hopes to cooperate with EDP in eastern Europe and South America. Three Gorges has a dozen subsidiaries, including listed unit China Yangtze Power Co Ltd

Ken Su, a partner with PricewaterhouseCoopers in Beijing, said the crisis could help Chinese power companies in their attempts to acquire foreign assets, and more were likely in the next two years.

"In 2006-07, we started to see more activity in the power sector. Many of the deals haven't been completed and in general they take a long time to negotiate -- a few of them have come through and it may be due to the prevailing economic conditions, which may be helping deals get done," he said.

There has been little opposition to Chinese power companies taking over foreign counterparts.

"When it is managed well, the local governments and local people can be very welcoming to a Chinese investor," said Su.

"I don't think there is one single overarching global sentiment despite the constant media attention about how active China is and how China is buying everything up."

The power industry executive shrugged off speculation of any ulterior motive, saying the takeovers were "purely profit-oriented."

"Our domestic market is limited," he said. "The (foreign) companies are profitable. There is no need to raise electricity prices. We cannot monopolise power generation and transmission because local regulators have the final say over price rises."

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Tags: internalization, China power firms, state grid, grid operators