Welcome to our weekly roundup of news from South America.
Mosoj ESG provides information, data and analyses relating to South America integrating Environmental, Social and Governance topics to promote sustainable development.
From China with Love
It was recently reported that Tianqi Lithium, a Chinese lithium producer, would default on a $1.9bn loan due at end-November. On Monday, Tianqi said creditors had extended the maturity date by one month. This loan was part of the $3.5bn debt used to fund a $4.1 bn acquisition of a 23.8% stake in the Chilean lithium producer SQM.
The impact for SQM is yet to be fully understood, though perhaps a partial sale of its shares in SQM would certainly be a quick way to fix the issue. Certainly, there are some precedents when Chinese companies in debt distressed have had to fire sale their overseas assets.
To be sure, this was a significant investment, though others significant investments have been concentrated mostly in Brazil, its largest commercial partner in the region, followed by Peru and Argentina. Chinese companies are also making ways in Colombia, having signed a $4.5bn contract to build the Bogota subway.
Exhibit 1: Chinese investment and contracts in South America - 2005 to 2020, by countries
Source: China Global Investment Tracker, AEI.
Generally, we can see that Chinese investment and contracts in South America have been steadily growing totalling $178.3 billion dollars between 2005 and 2020. The energy sector accounting for the majority the Chinese presence in the subcontinent, followed by mining (20%) and transportation (10%).
Exhibit 2: Chinese investment and contracts in South America - 2005 to 2020, by Sector
Source: China Global Investment Tracker, AEI.
Of note, the largest acquisition so far has been into the Brazilian electricity sector, where State Grid Corporation has a significant presence across the value chain through its controlling stake of CPFL Energia S.A, who is the largest integrated private sector company. This presence represent ca. 5% of the market share in transmission lines, +6% and 5% in distribution and commercialization according to “Report on the Brazilian Power System” by Agora Energiewende & Instituto E+ Dialogos Energeticos (2019).
Together with Sinopec, and Three Gorges Corporation, these investments represent over $41.5 billion, 33% of total Chinese investments in South America. The biggest contractors being Sinomach and China Energy Engineering Corporation, with contracts for over $13.9 billion.
Exhibit 3: Chinese investors and contractors, in US$ Mn - 2005 to 2020
Source: China Global Investment Tracker, AEI.
These are not paltry numbers, and certainly the presence of Chinese investment in the electricity sector, one set to grow in importance in a low-carbon world, is of strategic importance. When we looked at some of the numbers, we denoted 269 South American companies as having Chinese capital. Between 2018 and 2019, these companies made $48.1 billion in annual revenues.
Yet, many investments have gone off-grid, with little information on their revenues or profitability, such as Sinochem ca. $1bn takeover of an Oil and Gas company owned by Total. The little transparency is cause of concern to analyze sustainability practices, particularly if most direct investments were highly leveraged as in the case of Tianqi.
Indeed, there are several important things to note in the Tianqi transaction, namely (i) the large amount representing ca. 26.4% of direct investment that year in South America, (ii) the format of the transaction, involving a highly leveraged acquisition structure (85% debt, 15% equity), (iii) the industry – lithium, a key component for lithium-ion batteries used in Electric Vehicles (EVs) and rechargeable batteries, (iv) the financial problems of the acquirer, with an increasing number of defaults happening in China, and finally (v) how it will resolve the situation – probable sale of Australian assets reportedly, a country which is currently engage in a trade spat with China.
Going forward, as China continues its growth and investments in the region, understanding what is happening in China is indeed very important to understand what and how its companies will be operating in the sub-continent.
Brazil’s GDP grows 7.7% in Q3, but does not eliminate pandemic losses
End of $1.7bn litigation reopens electricity market
BNDES to allocate $17 bn to small and medium-sized enterprises
Brazil’s mortgage market is booming with home loans reaching $135bn
Government includes airports in partnership program to bring $69 bn in investments
Brazilian trade balance has a positive balance of $3.7 bn in November
Brazil raises $2.5 bn in foreign issuance
Cemig buys solar power plants with investments of $ 10.3 mn
TAG to invest $288 mn in 5 years
Petrobras strengthens environmental agenda and projects $1 bn investments
Petrobras raises divestments to up to $35 bn with gas pipelines
Brazil Steel Institute estimates domestic sales to rise by 5.3% in 2021
Poverty in Argentina rose to 44.2%
YPF opened a new thermal power plant in La Plata with an investment of $166 million
The trade balance shows a deficit of $275 million with Brazil
Argentina to pay $94.5 million to Bainbridge Capital investment fund on defaulted bonds
The Iraola Group will invest $105.88 mn to manufacture Kawasaki motorcycles
Fractures in Vaca Muerta in 2020 increased 58% over the previous month
Ford announced a $580 mn investment to produce the new Ranger in the country
Economic activity fell by 4.1% in October 2020 compared with October 2019
Austral is absorbed by Aerolíneas Argentinas, allowing annual savings of $100 mn
The government extended the concession to AA 2000 until 2038, in exchange for investments of $857 mn
Chile to close 2020 with a 6% GDP decline
Chilean lawmakers approve second pensions withdrawal
Pfizer will send 1.6 million doses of COVID-19 vaccine to Chile in the first quarter of 2021
Siemens, Porsche to open world’s first industrial plant for climate-neutral e-fuel
Germany makes a $9.9 million contribution to Siemens hydrogen plant in Chile
Codelco to spend $210m by year-end to keep mines running
Chilean public health workers go on indefinite national strike
Hot Chili raises $18.8mn for Chilean Corteda project
BlackRock signs agreement with Banchile Inversiones
Chilean carriers estimate they will operate between 40% and 80% of their total capacity
Copper set for best month in 4 years due to robust China manufacturing data
OECD adjusts Colombia’s GDP forecasts for 2020 at -8.3% and 2021 at 3.5%
Colombia has drawn $5.4 billion from flexible credit line, IMF says
Colombian exports in October reached $ 2.6 bn, 21% less than in 2019
Colombia approves infrastructure works plan in Colombia for $ 2.6 bn; 330,000 jobs will be generated
Colombian conglomerate ISA reveals its $12.6 bn investment plan for 2030
Colombian ISA agrees to purchase Brazilian PBTE for $ 309 mn
Colombia to invest nearly $1bn in two digital programmes
The financial sector in Colombia recorded profits of ca $6.7 bn as of September 2020
Medellín light railway secured $667 mn in government resources for its construction
Colombia commits to reducing greenhouse gas emissions by 51% by 2030
Remittances to Colombia grew 14% in October, reach $5.6 bn
Registration of electric and hybrid vehicles in Colombia grew 164% in October
BoA owes $7.17 million in taxes and reports a loss of $38.74 million
Sugarcane growers ask YPFB to pay $25 million for ethanol delivered
Entrepreneurs estimate that Christmas bonus will cost them $446 mn
Bolivia initiates payment of the Bono contra el Hambre assigning $600 mn
Wealthy Bolivians send money abroad after Arce’s victory and reserves fell to $5.1 bn
Communication sector grows 5.65%
Entrepreneurs propose an injection of $15 bn for medium and small companies
Expoautomotriz 2020 achieves $4.7 million in vehicle purchase intention