China Yangtze Power International’s $3.6 billion Acquisition of 83% Stake in Luz del Sur

Sempra Energy (NYSE: SRE) entered into an agreement to sell its equity interests in its Peruvian businesses; this included selling its 83.6% stake in Luz del Sur S.A.A. (Luz del Sur), to China Yangtze Power International (Hongkong) Co., Limited CYP for USD 3.59 billion in cash, (subject to closing adjustments for working capital and net indebtedness).

Even though Luz del Sur (LDS) is the largest listed power company in Peru, this sale will also include Sempra Energy’s interest in Tecsur S.A., which provides electric construction and infrastructure services to Luz del Sur and third parties, and Inland Energy S.A.C., Luz del Sur’s generation business.

The sale is expected to be completed in the first quarter of 2020, subject to customary closing conditions, including approval by the Peruvian anti-trust authority and the Bermuda Monetary

Tian Yuan Law Firm, Baker McKenzie, Muñiz, Olaya, Meléndez, Castro, Ono & Herrera, White & Case and Rodrigo, Elías & Medrano advised on the deal.

Interview with Jorge Muñiz at Muñiz.

Please tell me about your involvement in the deal.

Our firm represented China Yangtze Power International (CYP), a subsidiary of China Three Gorges (CTG), in the purchase of the participating interest held by the US power company Sempra Energy (83.6%) in Luz del Sur, the largest power distribution company in the country. The team of highly specialized lawyers that I headed, together with my partner Andrés Kuan-Veng, director of the Corporate Finance practice group of our firm, helped the Tian Yuan Chinese law office, which is also highly specialized, carry out a due diligence examination into Luz del Sur, which, given the amount involved in the transaction, required us to review and validate a large number of documents which were very important to the buyer and were also highly confidential.

  When this purchase took place, the electricity sector was the only sector in Peru where transactions needed to be subsequently approved by Indecopi.

Why is this a good deal for all involved?

This transaction, involving USD 3.59 billion, represents the largest deal carried out in Peru in the last few years and also the largest deal closed by a Chinese company abroad during 2019. This transaction strengthens, as stated by CYP in a press release, a strategic partnership between Peru and China. On the other hand, Chinese companies related to different sectors of the economy (like mining, infrastructure, telecommunications, etc.) have opened an office in Peru and require very sophisticated legal services and high quality standards. Our firm has proved why it is one of the most important and renowned law firms in Latin America.

What challenges arose? How did you navigate them?

This transaction, according to Peruvian law, is still to be approved by the National Institute for the Defense of Competition and the Protection of Intellectual Property (Indecopi). When this purchase took place, the electricity sector was the only sector in Peru where transactions needed to be subsequently approved by Indecopi. This type of transaction does not take place every single day in Peru, for which reason it is necessary to set up a team of qualified professionals who are thoroughly aware of the applicable legislation. We are focused on providing the information required by the competent authorities to successfully complete this transaction, which should occur in the first quarter of 2020.