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China’s trading ambitions to buy ports and marine cargo-handling businesses in Brazil

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Advent International has steered a Brazilian port operator to shore in a $1 billion deal. TCP Participações ticks a strategic box for state-backed buyer China Merchants Port – and fits into China’s broader trade ambitions.

Brazil has been tough on buyout firms. It is just emerging from its worst recession on record, suffering a currency rout and political unrest. Deals and fundraising crashed last year and the appetite of investors waned, with just 11 percent singling out Brazil as one of the best emerging markets for private equity.

So it looks like Advent had a lucky escape with TCP, which runs Brazil’s second-largest container terminal. This week’s deal will see the Hong Kong-listed buyer acquire about 90 percent from Advent and other investors. That values TCP at 14.3 times EBITDA, Reuters says, compared to the average of 8.9 times expected EBITDA for port deals in the Americas in the first quarter.

Advent paid about $400 million for 50 percent of TCP in 2011. It has made 2.5 times its money in local-currency terms, including dividends, having helped improve the business, says a person familiar with the matter. There will be a currency hit, since this was done in a dollar fund with no currency hedge. But Advent will still make a significant profit, this person adds. The sale was probably helped by the fact that Brazil’s economy is now recovering, as are commodity markets.

The deal gives CM Port an entry into Latin America, a missing continent in a global portfolio that spans Asia, Africa, the United States and Europe. DBS reckons the port runs at about half-capacity, giving plenty of scope to boost revenues and earnings. There is also a good fit in that China is the biggest consumer of Brazilian meat, and TCP is the market leader for frozen meat.

Brazil is not formally part of Beijing’s “Belt and Road” plans, which aim to bolster ties to Asia, Africa, the Middle East and Europe. But that scheme shows the scale of China’s trading ambitions. China was already the busiest acquirer of ports and marine cargo-handling businesses in the first half, Thomson Reuters data shows. Expect more ahead.