China govt plans to crack down on over­seas deals

Kuwait Times - - BUSINESS -

HONG KONG: China plans to fur­ther tighten the screws on over­seas acquisitions by Chi­nese com­pa­nies and bor­row­ing to fund those trans­ac­tions, and has started closely scru­ti­niz­ing the com­mer­cial as­pects of the deals, three peo­ple fa­mil­iar with the move said. The Na­tional De­vel­op­ment and Re­form Com­mis­sion (NDRC), and the Min­istry of Com­merce (MOFCOM) are now re­view­ing deal agree­ments in minute de­tail, said the peo­ple, who work with var­i­ous reg­u­la­tory bod­ies and Chi­nese com­pa­nies on their ac­qui­si­tion plans. The two bod­ies are ask­ing com­pa­nies look­ing to buy as­sets over­seas to jus­tify terms, in­clud­ing tar­get val­u­a­tions, deal premi­ums and fi­nanc­ing ar­range­ments, they said.

This was par­tic­u­larly the case with com­pa­nies not seen by the Chi­nese gov­ern­ment as “strate­gic,” they said. The tight­ened mea­sures have been is­sued as in­for­mal guid­ance by Chi­nese reg­u­la­tors and have not been made of­fi­cial yet, said two of the peo­ple.

The tight­en­ing of reg­u­la­tory over­sight for out­bound pur­chases comes as Bei­jing is crack­ing down on some large do­mes­tic con­glom­er­ates for their debt-fu­elled acquisitions abroad of as­sets rang­ing from ho­tels to movie stu­dios. The reg­u­la­tory mea­sures, if in place for an ex­tended pe­riod, could de­ter some com­pa­nies from mak­ing over­seas acquisitions, and could also weigh on out­bound deal vol­umes in China.

China’s out­bound M&A vol­umes nearly halved in the first six months of this year to $64.2 bil­lion fol­low­ing a crack­down on cap­i­tal out­flows, af­ter Chi­nese com­pa­nies spent a record $221 bil­lion on as­sets over­seas in 2016, ac­cord­ing to Thom­son Reuters data.

On top of tight­ened scru­tiny of deal terms, the coun­try’s for­eign ex­change and bank­ing reg­u­la­tors are also look­ing to step up their mon­i­tor­ing of loans made by the over­seas branches of Chi­nese banks, two of the peo­ple said. Those two reg­u­la­tors - the State Ad­min­is­tra­tion of For­eign Ex­change (SAFE) and the China Bank­ing Reg­u­la­tory Com­mis­sion (CBRC) - also plan to make it tougher for com­pa­nies to bor­row over­seas by pledg­ing some as­sets in China, the peo­ple said.

Bor­row­ing funds from for­eign banks and over­seas branches of Chi­nese banks by pledg­ing real es­tate and other as­sets in the main­land with lo­cal banks has been a com­mon prac­tice for some com­pa­nies look­ing to fund for­eign acquisitions. But some in­dus­try of­fi­cials have ques­tioned the qual­ity of those pledged as­sets, and whether the lenders would be able to raise money against those in case bor­row­ers de­faulted on their re­pay­ment obli­ga­tions.

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.