China-spain-latin america triangulation in a chinese perspective (ari)

Real Instituto Elcano
Jiang Shixue
ARI 4/2011 - 14/1/2011
Theme: This paper looks at the prospects for triangulation between China, Spain and Latin America in the wake of the Sinopec-Repsol deal in Brazil.

Summary: The recent Sinopec-Repsol agreement in Brazil’s energy sector is the result of China’s massive ‘going out’ strategy and of Spain’s increased role as a ‘bridge’. This paperlooks at the results and prospects of the China-Spain-Latin America triangulation, highlighting the challenges ahead for this promising instance of international cooperation.

Keywords: China, Spain, Latin America, Sinopec, Repsol, Brazil, triangulation, China’s outward investment.

Analysis: On 1 October 2010 it was announced that Sinopec, one of China’s largest energy companies, would investUS$7.1 billion in Repsol YPF Brasil, taking a 40% stake. The Brazilian company, which represents the interests of its Spanish parent, Repsol, in the Brazilian market, produces, exploits, transports and distributes crude and gas derivatives throughout Brazil. Its main products are gasoline, alcohol, biodiesel, NGV, diesel, fluids and motor lubricants.

A Treble-win Scenario
Sinopec’s cooperationwith Repsol creates a treble-win scenario. For Sinopec, the investment can strengthen its foothold in Latin America’s energy sector. It believes that this transaction will further enable it to achieve its strategic objective of building a stronger presence and operations in the region, accelerating its international growth strategy as well as optimising its offshore oil and gas asset portfolio.For Repsol, the deal will enable it to acquire enough funds to develop its deposits in Brazil, one of the world’s most important exploration markets since the discovery of massive pre-salt oil reserves off the Brazilian coast.

According to Reuters, on the day the deal was sealed, Repsol’s shares rose 5.6% to a 2-year high of €20.00 while the construction firm Sacyr-Vallehermoso, which holds astake of around 20% in Repsol, jumped 12.7%. Repsol’s Chairman Antonio Brufau said in a statement: ‘We are delighted to share the development of the Brazilian projects with a partner with recognised prestige in the sector like Sinopec’.

The Sinopec-Repsol deal is also positive for Brazil, which has been looking for foreign capital to open up its resources. Before his visit to China in May 2009,President Lula said that Brazil would welcome Chinese investment in its infrastructure and energy sectors. He believed that China would become an important partner for Brazil when it attempts to tap its enormous pre-salt oil reserves.

On 4 January 2011, Sinopec’s Chairman Su Shulin, who was accompanying the Chinese Vice Premier Li Keqiang during his visit to Spain, met Repsol Chairman AntonioBrufau in Madrid and they presided over the first joint meeting at the top corporate level between both companies following the agreements reached in Brazil. They agreed to create working groups to analyse new business opportunities world-wide. Antonio Brufau said, ‘There are significant synergies between Repsol and Sinopec, and the relationship between both companies is ideal to continuereinforcing our alliance worldwide in new business areas’. Su Shulin also expressed satisfaction over their cooperation. He said, ‘The successful co-operation between Sinopec and Repsol reflects the shared desire of both companies to start a long-term and extensive partnership. We are committed to making every effort to consolidate and develop this relationship with Repsol in the future’.

Cooperationbetween Sinopec and Repsol has attracted world-wide attention. The Financial Times believes that ‘China and its big companies are eager to invest in natural resources in emerging markets such as Africa and Latin America. Repsol’s assets in former Spanish and Portuguese colonies are a particularly tempting target’. According to the Wall Street Journal: ‘The transaction gives China a piece of one of...