China Three Gorges drops talks with regulators for EDP buy: report

A leadership shake-up and tougher EU regulations could be dampening the utility’s spirits.

China Three Gorges (CTG) has dropped negotiations with regulators for its proposed $10.3b acquisition of Portugal’s EDP-Energia de Portugal, Reuters reports. This has raised doubts about whether a deal will progress or not.

CTG launched a takeover bid for EDP, of which it already owns 23%, in May 2018, but the transaction has moved at a slow pace. Sources say that CTG has yet to complete regulatory filings in Europe and the US. However, Portugal’s regulator said there are no signs the utility is preparing to abandon the deal.

CTG’s interest in lifting its stake in Portugal’s biggest company has waned due to a combination of factors including an internal leadership shake-up, the prospect of tougher EU regulations on foreign investment, and higher European electricity tariffs, three sources have said.

A CTG spokesman responded in a statement, “CTG continues to progress with all regulatory filings, continuing to work with a full suite of advisors in discussions with the regulators in different jurisdictions and in the fulfilment of all the prior conditions for the launching of the voluntary tender offer for EDP.”

“The current timings and calendar for such approvals are in line with other comparable transactions of this magnitude and complexity,” the spokesman added.

EDP and the European Commission declined to comment.

An EU proposal made in November 2018 tackling rules for a far-reaching system to coordinate scrutiny of foreign investments into Europe, notably from China, will be voted on by the European Parliament in February or March. Under the plan, the European Commission would investigate foreign investments in critical sectors and offer opinions.

“That the anti-Chinese sentiment is also growing in Europe is a fact, and I can see how this is discouraging CTG,” a banking source said.

Fears that the deal will be blocked by US regulators have also risen due to tighter scrutiny from the Committee on Foreign Investment in the United States (CFIUS) and the Federal Energy Regulatory Commission (FERC) on Chinese investment.

EDP’s renewables unit, EDP Renovaveis SA, has a portfolio of 5,055MW in the US, including both onshore wind (4,965 MW) and solar power plants (90 MW).

Read the full report here.