China Merchants acquires 90% of Brazil’s Paranagua port

The acquisition of a 90 percent stake in TCP Participações S.A., the operator of the second largest port in Brazil, will cost the China Merchants Port Holdings $920 million as the Chinese company looks to kickstart its expansion into South America.    China Merchants Port Holdings (CM Port) plans to acquire a 90 percent stake in Brazil’s second largest port, Paranagua, for 2.89 billion Brazilian reals (U.S. $920 million), the company said in a statement.
   CM Port will buy the shares from port operator TCP Participações S.A, (TCP) as part of its larger plan to expand into the Latin American market, the company said.
   “TCP is not only CM Port’s cornerstone to enter Brazil, but also the future hub of the rising commodity and goods trade flow between Brazil and China,” said CM Port managing director Bai Jingtao of the deal. “This landmark acquisition demonstrates CM Port’s confidence in the Brazilian economy and its commitment to contribute to the development of the country’s infrastructure and the increased flow of business between BRICS countries.”
    BRICS countries include Brazil, Russia, China, India and South Africa – the five major emerging national economies. Brazil’s ports have seen steadily increasing volumes, with the port of Paranaguá seeing an annual capacity of 1.5 million TEUs – also set to rise to 2.4 million TEUs a year upon completion of its expansion plan in 2019.
   According to Chinese news outlet the South China Morning Post, Corrine Png, chief executive of transport industry research firm Crucial Perspective, said that from a short-term perspective, China Merchants Port’s acquisition was not cost-effective.
   “This is a pricey acquisition considering that TCP was loss-making in 2016 and the implied valuations based on its 2016 net asset value and 2015 profits also look expensive,” said Png. “The deal looked more attractive from a longer-term perspective.
   However, Png noted that “Latin America accounts for 13 percent of global container shipping trade volume, and TCP is the second largest container terminal in Brazil,” and that “[g]ood port assets are also rarely put up for sale.”
   In 2017 alone, there have been nine outbound acquisitions by Chinese companies in the logistics sector, with a combined value of U.S. $39.2 billion, according to Mergermarket data, said the South China Morning Post. CM Port has been among them and is expected to make more acquisitions in future.
   “Although this is a substantial acquisition, China Merchants Port Holdings can afford it, as it is well-capitalized. Even after funding for this TCP acquisition, China Merchants Port Holdings can easily shell out another HK$15 billion to fund future acquisitions,” commented Png.