Botswana Guardian

China’s takeover titans reverse tack as valuations soar


Just a few years ago, Chinese firms spent lavishly overseas on everything from luxury hotels to soccer clubs. Now they are heading for the exit amid rising demand for anything that throws off cash.

Companies in China announced divestment plans of their overseas assets worth $ 10.5bn so far in 2021, the second- highest total since at least 1998, according to data compiled by Bloomberg. At the current pace, 2021 could surpass last year’s $ 15bn sum.

“These days Chinese companies are proactivel­y looking at their asset portfolios, rather than simply buying,” Bagrin Angelov, head of China cross- border mergers and acquisitio­ns ( M& A) at China Internatio­nal Capital Corporatio­n, said in an interview. “When there is a good offer, they are open to at least evaluate it.”

Some of the areas seeing renewed interest include waste treatment businesses, with statebacke­d Beijing Capital Group and Beijing Enterprise­s Holdings are considerin­g sales of their overseas holdings. China Tianying in June agreed to sell its Spanish waste management company Urbaser for $ 1.8bn.

Unlike once- acquisitiv­e conglomera­tes such as China Evergrande Group and HNA Group, which are now busy shedding assets to reduce debt, the current crop of Chinese sellers mostly are not in financial distress.

Instead, they are disposing of holdings — particular­ly those with strong cash flows — whose valuations have surged as investors sift through the wreckage left behind by the pandemic, searching for profitable assets amid low interest rates.

Infrastruc­ture and utilities are among the types of assets that Chinese firms are considerin­g to divest. Beijing Capital is seeking $ 1bn from a sale of its New Zealand business that it bought for about $ 667m in 2014, Bloomberg News reported earlier.

China Three Gorges Corporatio­n is nearing a deal to sell a 25% stake in its overseas renewable energy asset portfolio that could be valued at as much as $ 2bn, people familiar with the matter have said.

“It’s good timing for these companies to monetise,” Miranda Zhao, head of M& A for Asia Pacific at Natixis, said in an interview. “These assets provide healthy yields under the current low interest- rate environmen­t and are attractive to other strategic investors in the region or infrastruc­ture funds.”


Chinese firms raising cash from such sales would find it difficult to plough that money back into other overseas assets, given the increased scrutiny from foreign government­s since the start of the coronaviru­s pandemic.

In 2020, Australia, India and the EU all tightened their rules for screening takeover proposals by foreign firms, moves widely seen as targeting China. As a result, overseas acquisitio­ns by Chinese companies fell 21% in 2020, according to data compiled by Bloomberg.

China’s Creat Group Corporatio­n is considerin­g selling its stake in German blood plasma supplier Biotest, which it bought in 2018. The pharmaceut­ical group now aims to reverse the deal — intended at the time to be the cornerston­e of its overseas expansion — after the committee on foreign investment in the US hampered its ability to tap the global market.

While divestment­s help some Chinese firms recoup some of the money and channel it to other areas or regions of focus, others may want to hold on as acquisitio­ns become more difficult in the current geopolitic­al climate.

The UK government opened a probe in July into the takeover of the country’s biggest chip plant by Chinese- owned Nexperia.

“It’s one but not the only factor to consider,” said Natixis’s Zhao. “If the Chinese owners think it’s important for them to have a presence in certain regions or the target has certain technologi­es and synergies to be explored, they’d keep it.”

Other Chinese companies have been burnt by bets outside their core businesses. Suning Holdings Group, which started as an appliance retailer, tried this year to sell out of indebted Italian soccer team FC Internazio­nale Milano. The club agreed to a bailout deal with Oaktree Capital Group in May that could result in Suning losing control.

Steelmaker Jiangsu Shagang Group is eyeing a sale of London- based data centre operator Global Switch Holdings that could value it at £ 8bn, Bloomberg News has reported. In June, property tycoon Lu Zhiqiang’s China Oceanwide Holdings Group agreed to sell IDG, the US publisher behind Computerwo­rld magazine, to Blackstone.

“In the past, the vast majority of M& A activities were Chinese companies buying assets, which was simply onedirecti­onal,” said China Internatio­nal Capital Corporatio­n’s Angelov. “Now it’s a mix of buying and selling, including Chinese companies buying and selling minority stakes. It is becoming much more of a diversifie­d M& A market.”

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Chinese firms are divesting

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