Wednesday, 5th January 2011 by Joe Rowley

Milbank, Tweed, Hadley & McCloy LLP, Pinheiro Neto Advogados and Machado, Meyer, Sendacz e Opice Advogados have helped the State Grid Corporation of China seal the first non-Asian acquisition of an electricity grid in Brazil - a deal that hinged on the successful negotiation of a new financing deal to repay Brazilian development bank BNDES.

State Grid′s latest deal one of the largest in Latin America (Credit: bigbirdz)

The agreement with BNDES, concluded on 15 December, represents the final hurdle in a complex acquisition process begun in May last year that sees State Grid acquire seven concessions amounting to 3,200 km of power transmission lines in Brazil from four Spanish infrastructure operators.

The sellers, Isolux, Elecnor, ACS Cobra and Abengoa, were represented in the US$1.8 billion deal by a team of lawyers drawn from the Beijing and Madrid offices of Uría Menéndez and its Brazilian affiliate, Dias Carneiro Advogados.

In a separate but simultaneous acquisition, the same team also advised Elecnor in the acquisition of an eighth transmission line from Isolux and ACS Cobra for US$200 million including debt.

The previous project financing entitled BNDES to manage the production and operation of the transmission lines, meaning the change of ownership was restricted, so a new financing deal had to be agreed to repay BNDES before the acquisition could proceed to closing.

Rafael Dutra, partner at Dias Carneiro, says that negotiating a new financing deal was "critical" to closing the deal and required substantial "creativity and effort" from all the parties involved to navigate the complex price and debt mechanisms.

Uría Menéndez partner Juan Martín Perrotto agrees, adding that it was also essential that both sides maintained a high level of cultural awareness to ensure that a deadlock would not develop that may prevent the deal from being closed.

"On the one hand you are not allowed to transfer the shares while you have the BNDES financing, so you have to repay the BNDES financing first, but on the other hand until you have absolute certainty that the Chinese were going to take over the company, it was not in our interest to repay the financing, and so it′s a Catch-22 situation", he says.

"The internal legal team were great and very sophisticated, but cultural differences were still there in terms of the decision-making process, negotiation >
"The decision process is much slower and more collegial than we see in the West where you take your chances and make a decision on the spot", he adds. "But at the same time, the Chinese view us as much more emotional and aggressive in making decisions, so there are differences in both sides that can make the process difficult."

The largest-ever Chinese investment in Brazil when it was announced at the start of May last year, the deal currently ranks second following the purchase by Sinopec of Repsol′s Brazilian oil assets for US$7.1 billion in October.

Despite this, the deal still represents the largest Chinese investment in electricity distribution outside of China, as well as being the first time that a Chinese utility company will fully own a foreign national-level electricity grid.

Perrotto, who practised in Latin America for over 10 years and is now based in Uría Menéndez′s Beijing office, says the growing influence of Chinese companies in Latin America bears similarities with the flow of European investment into the region during the 1990s.

"What we have seen [in recent years] is increased activity in the M&A markets in this region, as well as commodities, natural resources and mining, and we don′t expect that to change in the near future", he says.

"What we expect to see is interest in other sectors as well. As soon as the Chinese have secured commodities and natural resources, I think they will start thinking in terms of brands, distribution and technology, especially in terms of renewable energy."

"You only have to see the volume and value of the deals in Brazil to see that Brazil is by far the first destination for Chinese investment in Latin America", he adds.

Counsel to China State Grid International


·         Milbank, Tweed, Hadley & McCloy LLP

Partners Anthony Root and Dan Bartfeld in New York and associate Sarah Tian

·         Wilson Sonsini Goodrich & Rosati

Partner Weiheng Chen and associate Jie Zhu.


·         Pinheiro Neto Advogados

Partner Francisco Maranhão and associate Marcello Lobo

·         Machado, Meyer, Sendacz e Opice Advogados

Partner José Ribeiro do Prado and Adriano Schnur Ferreira

Counsel to Isolux, Elecnor, ACS Cobra and Abengoa


·         Uría Menéndez

Partners Juan Franciso Falcon in Madrid, Juan Martín Perrotto in Beijing and Luis Acuña in São Paulo and associates Verónica Iezzi in Beijing and associate María Veiga Alonso in Madrid


·         Dias Carneiro Advogados

Partner Rafael Dutra and associates Guilherme Zugno, Cleber Cilli, Gustavo Hoerbe and Daniela Aranha de Araújo