Risks rise for over­seas M&As

China Daily (Canada) - - FRONT PAGE -

au­thor­i­ties con­firmed that they have re­ceived the of­fi­cial doc­u­ment filed by the Chi­nese side seek­ing com­pen­sa­tion for losses in its bid for the scrapped $3.75 bil­lion high­speed rail project, ac­cord­ing to Mex­i­can me­dia re­ports.

The deal would have been the largest sin­gle over­seas con­struc­tion deal won by a Chi­nese-led con­sor­tium. The com­pen­sa­tion that China has de­manded will likely be val­ued at 100 mil­lion yuan ($16 mil­lion), Chi­nese me­dia re­ports said.

Sim­i­larly, Greece has halted the sale of a ma­jor­ity stake in one of the coun­try’s largest ports Pi­raeus, which China Ocean Ship­ping (Group) Co bid for.

The scrapped deals show that the re­al­ity has been much more com­pli­cated than what Chi­nesec­om­pa­nieshadan­tic­i­pated for over­seas in­vest­ments, ex­perts said.

Cheng Jun, part­ner of the Bei­jing-based Zhong Lun Law Firm, said that a lack of un­der­stand­ing of the for­eign legal and po­lit­i­cal en­vi­ron­ment is oneof the­main­rea­sons for the fail­ure of such deals.

“Some Chi­nese com­pa­nies tend to be­lieve the ver­bal prom­ises made by of­fi­cials from the host coun­try dur­ing the ne­go­ti­a­tion process. This ex­poses them to the de­fault risks from the other side,” Cheng said.

Lack of in-depth due dili­gence and in­suf­fi­cient knowl­edge about coun­ter­party trans­ac­tions have also led to huge losses in some over­seas Chi­nese merger and ac­qui­si­tion deals, he said.

Po­lit­i­cal risk is an­other ma­jor fac­tor that led to the fail­ure of some over­seas in­vest­ment deals.

Among the 120 failed out­bound deals be­tween 2005 and 2014, about 25 per­cent were due to po­lit­i­cal rea­sons, a re­cent re­port showed.

Though China be­came a net cap­i­tal ex­porter last year with to­tal out­bound di­rect in­vest­ment reach­ing a record $102.9 bil­lion, a ma­jor­ity of the deals were loss-mak­ing, some ex­perts said.

Xu Hong­cai, an econ­o­mist at the China Cen­ter for In­ter­na­tional Eco­nomic Ex­changes, said: “Lack of tal­ent familiar with in­ter­na­tional prac­tices has also been a ma­jor short­com­ing for Chi­nese com­pa­nies in over­seas mar­kets.”

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.