Chi­nese ac­quir­ers may spend $1.5tn on out­bound deals in next decade

Muscat Daily - - BUSINESS -

Lon­don, UK - Chi­nese ac­quir­ers will spend US$1.5tn buy­ing com­pa­nies and in­vest­ing over­seas in the next decade, 70 per cent more than the pre­vi­ous ten years, even as reg­u­la­tors at home and abroad block deals, Lin­klaters LLP said in a re­port on Tues­day.

Gov­ern­ment poli­cies en­cour­ag­ing Chi­nese com­pa­nies to in­vest in man­u­fac­tur­ing ca­pa­bil­i­ties, par­tic­u­larly for ad­vanced tech­nol­ogy, and in­ter­na­tional trade will help main­tain deal flow, the law firm, which spe­cialises in ad­vis­ing on merg­ers and ac­qui­si­tions, said in the re­port.

Chi­nese buyers have spent about US$880bn on as­sets in other coun­tries in the last ten years, ac­cord­ing to the data.

The suc­cess of China’s bid­ders will de­pend on their abil­ity to over­come for­eign coun­tries’ concerns about na­tional se­cu­rity and in­ter­est, which con­trib­uted to the fail­ure of as much as US$75bn in an­nounced out­bound deals last year, Lin­klaters said in the re­port. China may also have to bow to in­ter­na­tional pres­sure to lib­er­alise its mar­kets, it said.

‘While the pace of out­bound deals has de­clined in 2017, China’s long-term as­pi­ra­tions’ mean that over­seas ‘in­vest­ment and ac­qui­si­tions from China will con­tinue to be a sig­nif­i­cant force over the long term’, Lin­klaters said.

Reg­u­la­tors have gen­er­ally blocked Chi­nese busi­nesses’ bids for com­pa­nies in in­dus­tries seen as crit­i­cal to their economies or na­tional se­cu­rity, such as in­fra- struc­ture and tech­nol­ogy.

Aix­tron SE, the Ger­man semi­con­duc­tor equip­ment maker, saw its planned sale to a Chi­nese-backed com­pany col­lapse in De­cem­ber af­ter the US gov­ern­ment op­posed the deal. Push­back from the same group, the com­mit­tee on for­eign in­vest­ment in the US, led to the ter­mi­na­tion of Chi­nese firm GO Scale Cap­i­tal’s US$2.8bn bid for Royal Philips NV’s light­ing unit, Lu­mileds.

A re­bound in M&A will also rely on a soft­en­ing of the Chi­nese state’s stance to­ward large, over­seas deals, which some in the gov­ern­ment see as a threat to the coun­try’s growth. Its reg­u­la­tors are as­sess­ing the dan­gers that th­ese pro­lific ac­quir­ers, and the debt they’ve run up, pose to China’s bank­ing sys­tem and econ­omy.

HNA Group Co, the Chi­nese avi­a­tion and ship­ping gi­ant that’s be­hind some of the big­gest over­seas deals, is among ac­quis­i­tive com­pa­nies un­der in­creased gov­ern­ment scru­tiny. Sev­eral ma­jor Chi­nese banks that have helped fund HNA’s deal spree have stopped is­su­ing new loans to the com­pany, peo­ple fa­mil­iar with the mat­ter said last month. HNA has said its fi­nan­cial po­si­tion re­mains strong and it has un­tapped credit avail­able from a wide range of Chi­nese lenders.

‘De­spite po­ten­tially in­creased scru­tiny by Chi­nese reg­u­la­tors and banks of some of the deals un­der­ly­ing th­ese flows, we ex­pect China to re­main ‘open for busi­ness’ with re­spect to gen­uine strate­gic over­seas ac­qui­si­tions’, Lin­klaters said in the re­port.

‘If such in­vest­ments are blocked in some ju­ris­dic­tions, this may re­di­rect Chi­nese play­ers’ in­ter­est to­wards other ju­ris­dic­tions’.


The Chi­nese flag (cen­tre) is seen hoisted out­side the of­fices of the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion in Bei­jing, China

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