Belt & Road to Brazil? China buys another port

State-owned China Merchants Port agrees to buy controlling stake in TCP, operator of Brazil's second largest port, as Beijing extends its influence to another debt-laden country.

Brazil’s second-largest container port will be in Chinese hands after state-owned China Merchants Port agreed a $920 million deal, sealing its second port acquisition in less than two months and extending China’s collection of overseas port assets.

Hong Kong-listed China Merchants Port announced on Monday it had entered into an agreement to buy a 90% interest in Terminal de Contêineres de Paranaguá (TCP) from US private equity firm Advent International. TCP operates Port of Paranagua in the southern state of Parana, Brazil’s second largest port with total annual capacity of 1.5 million twenty-foot equivalent units.

The deal follows hot on the heels of its purchase of Sri Lanka’s Hambantota port in late July. But unlike the previous deal, which was widely perceived to be an entirely politically-driven transaction between the Chinese and Sri Lankan governments, the acquisition of TCP entails a commercial element because the company is buying from a private equity firm rather than the Brazilian government.

Yet, the TCP transaction is still to a large extent driven by China’s desire to extend its political influence through buying overseas ports, a national-level strategy adopted in recent years. The deals tie in with the huge Belt and Road initiative that Beijing unveiled in 2013 to build infrastructure and influence in countries in Asia and beyond.

China Merchants Port made it clear politics was a key factor behind the deal. In its announcement, the company said the transaction would help it achieve its commercial objectives, while at the same time enhancing trade development and the comprehensive strategic cooperation relationship between China and Brazil.

It's no coincidence the TCP deal was announced during the ninth Brics Summit. The annual meeting brings together leading figures from the key emerging economies of Brazil, Russia, India, China and South Africa. This year, Chinese President Xi Jinping welcomed his Brazilian counterpart Michel Temer to Xiamen.

The pattern

China has tended to buy ports in countries that are struggling financially because this allowed Beijing stronger bargaining power when it comes to negotiations.

Last year, state-backed shipping giant China COSCO Shipping bought a 51% stake in Greece’s Piraeus port for $312 million, taking over the country’s largest port from a government that is still engulfed in the sovereign debt crisis that caused a stir across Europe in 2015.

Athens was generally seen as having little bargaining power, not only because of its weak finances but also China’s strong economic influence in the country. The heavily one-sided economic relationship between the two countries was highlighted by Greece’s trade deficit of more than $3.3 billion against China in 2015.

The Piraeus port sale was followed by China Merchants Port’s acquisition of Sri Lanka’s Hambantota port in July this year, a deal that has dragged on for nearly a year due to local protests. Sri Lankans were concerned the sale of the port to the country’s largest creditor would effectively turn part of Colombo into a Chinese colony.

But Sri Lankan Prime Minister Ranil Wickremesinghe has described the transaction as a “once in a lifetime opportunity” to boost his country’s economy and help with its debt repayment.

And now it is a similar story for in Brazil, a debt-stricken nation that had its sovereign rating downgraded to junk level by Standard & Poor’s, Moody’s and Fitch between 2015 and 2016. While the government is not the seller of TCP, it is likely to grant approval to its largest trading partner for the purchase because of the heavy investments associated with the deal.

China Merchants Port’s proposed acquisition of TCP will mark an end to Advent’s nearly seven-year majority ownership of the port operator, which it acquired in January 2011 for an undisclosed sum.

TCP booked a loss of $2.6 million last year, reverting from an after-tax profit of $16.2 million in 2015, according to its financial statement.

China Merchants Port, a subsidiary of state-owned China Merchants Group, said it would fund the purchase with a mixture of internal cash and debt financing.

¬ Haymarket Media Limited. All rights reserved.
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