60-second interview

Trade & Forfaiting Review quizzes Roderick Fraser, Standard Bank’s head of energy finance for the Americas, about the China-India effect on Latin America.

Q: It is clear China – and to a lesser extent India – through its huge demand for commodities and through acquisitions in local markets is affecting commodity markets in many countries. How is this playing out in Latin America?

A: This trend is happening not only in oil but other commodities as well. There have been some interesting permutations – in oil and gas we see them sometimes band together as joint venture partners. More often than not they are competitors, though, going after the larger asset sales.

Q: How do Chinese and Indian firms stack up against other foreign-based companies looking to acquire the same assets?

A: Fundamentally, Chinese and Indian firms are greatly influenced by the goal of acquiring the commodity – price and possible political risk are secondary considerations. One deal that really exemplifies this mindset is an oil company acquisition in Ecuador, a market that has significant political risk as well as local risks, such as strikes.

Some of the structural issues regarding the pipeline through which the reserves move and the structures of the concessions required in the transaction made the acquisition unpalatable – if not impossible – for a lot of firms. It was eventually acquired by a Chinese consortium. Their ability to tolerate risk and to be flexible on structural issues can top Western firms with their need to accommodate shareholder returns and performance.

Q: Do you think a backlash is developing to this trend? If so, how do you think China and India will pacify public opinion?

A: Well we saw what happened when the Chinese tried to acquire Unocal. That brought to a head in the US the political issues about whether a foreign company should own a large oil and gas company. I think the Chinese and Indian firms may begin operating behind the scenes more as a result, getting involved in transactions through offtake or funding agreements, as opposed to outright ownership.