China Grabs Share in Latin America Wind With Cheap Loans

From Bloomberg News

By Stephan Nielsen

Chinese wind-turbine makers have broken into the South American market, the world’s fastest- growing, by offering government-backed loans at interest rates as much as 50 percent lower than local offerings.

The package deals can get buyers to choose Chinese machines over those of Western manufacturers such as Vestas Wind Systems A/S (VWS) of Denmark or General Electric Co., much in the way the U.S. government helps American exporters sell everything from cotton to satellites by guaranteeing loans or insurance.

In one of the latest transactions, China Development Bank Corp. agreed on Nov. 15 to loan $261 million for a Grupo Isolux Corsan SA project in Argentina that will use 100 megawatts of turbines from Xiangtan, China-based XEMC Windpower Co. The state-run bank is talking to Argentine developer Geassa to support a $3.5 billion wind project that would be the continent’s largest.

“The name of the game here is the loan,” Geassa Executive Vice President Eduardo Restuccia said in an interview. The Buenos Aires-based company is negotiating to borrow $3 billion from China Development for its planned 1,350-megawatt wind project in southern Argentina’s Chubut province. “It’s not possible to get a long-term loan from a commercial bank.”

South American banks see multiyear loans for wind energy as too risky compared with lending on cars or homes. That has opened the door for Chinese turbine makers that provide both turbines and financing to establish a toehold in the world’s fastest-growing wind market, Restuccia said.

Chinese Loan

Geassa, short for Generadora Eolica Argentina del Sur SA, is seeking a 12-year loan with a two-year grace period and an annual interest rate of 6 percent above Libor, the London interbank offered rate. The financing may be complete by June, he said. The company will use Chinese turbines and hasn’t selected a supplier.

Benchmark three-month Libor rate for U.S. dollar- denominated financing is about 0.31 percent. That makes the loan Geassa is seeking less than half the cost of financing from Argentina’s development lender Banco de Inversion y Comercio Exterior, which offers loans for infrastructure projects at about 15 percent, said Eduardo Tabbush, an analyst at Bloomberg New Energy Finance in London.

Commercial banks in Latin America are often reluctant to offer loans for the lifetime of wind projects, which may exceed 15 years, Tabbush said. Chinese banks are less skittish, and willing to push out repayment until after the projects begin selling power and generating revenue.

Growing Market

“Emerging markets, with limited financing lines and high financing costs, are a priority for Chinese suppliers,” Tabbush said in an interview. “Latin America is a strategic area to deploy their excess capacity.”

South America has about 2,200 megawatts of wind farms in operation now, using mostly Western turbines, up from 76 megawatts in 2005, a growth rate that exceeds all other regions, said Tabbush.

Chinese manufacturers are looking for new markets, after falling turbine prices in the last few years have hurt share prices of most of the largest producers.

Xinjiang Goldwind Science & Technology Co., China’s biggest turbine company by revenue, has lost 28 percent this year, and Sinovel Wind Group Co. (601558), the second-biggest producer, has dropped 33 percent. The Bloomberg Industries Global Wind Energy index has fallen about 32 percent, led by Vestas, the world leader, which declined 61 percent. The index of 10 companies increased 1.1 percent at 11:58 a.m. in New York.

Isolux, a Spanish engineering company, expects to borrow $261 million from China Development for 12 years at 6 percent above Libor for its Loma Blanca wind farm, also in Argentina’s Chubut province, said Juan Carlos de Goycoechea, president of the company’s Argentine unit. The Chinese bank offered better rates than South American lenders, he said.

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