Chinese outbound investment boom falters- Nikkei Asian Review

HONG KONG — The boom in Chinese outbound investments since 2014 has apparently hit a speed bump amid tighter capital control and President Xi Jinping’s call for deleveraging. 

The total value of deals announced in the first half of this year, including those pending, amounts to $73.67 billion, down 43% from a year ago and 20% compared to the second half in 2016, according to financial data provider Dealogic.

Stripping out the mega takeover by state-owned China National Chemical Corp. of Swiss agro-chemicals producer Syngenta, worth $44.6 billion, the total volume in the first six months still represents a drop of 13% compared to last year.

The number of deals likewise declined nearly 16% on the year to 345, with average deal size dropping by a third to $213.5 billion.

“There are a lot more deals valued below $1 billion compared to last year,” said Samson Lo, head of mergers and acquisitions for Asia at UBS, noting that smaller deals were considered more manageable by non-state-owned companies, while anticipating that more investments would be led by syndicates. 

Four out of the top 10 deals struck this year were originated by consortia as opposed to single buyers. For instance, the $16 billion buyout of Singapore-based Global Logistic Properties (GLP), the largest outbound transaction from China so far this year, was launched by the country’s largest homebuilder China Vanke, Bank of China (BOC), together with private equity firms Hopu Investment Management, SMG Eastern, and Hillhouse Capital Management.

“The main reason is China’s increasing capital control since November, especially for privately-owned enterprises,” explained Lo, not discounting the impacts of China Banking Regulatory Commission’s probes into the debt profiles of various acquisitive conglomerates.

Reports of heightened scrutiny have led to retreats in the price of bonds and listed stocks linked to prominent dealmakers such as Dalian Wanda, HNA Group, Fosun International and Anbang Insurance Group.

Wanda, which owns the world’s largest cinema chain AMC Entertainment Holdings, and had spent at least $23.47 billion on overseas acquisitions since 2012, was reportedly banned from domestic bank loans as well as from pledging onshore assets for offshore financing last month when engaging in cross-border investments. 

Controlled by one of China’s richest billionaires Wang Jianlin, the company on Wednesday sold its theme parks to Tianjin-based developer Sunac for 43.8 billion yuan ($6.47 billion), and sold its hotels to Guangzhou-based R&F Properties for 19.91 billion yuan.

HNA Group, the biggest non-state Chinese outbound investor last year, was also reportedly shunned by Wall Street banks which had until recently been active in advising the sprawling company on snapping up assets across the globe.

Expecting less deals from private companies, Lo said state-owned enterprises and domestic private equity funds would take up the slack and buoy China’s outbound merger and acquisition activities this year, especially in the areas of chemicals, fashion and apparel, infrastructure, insurance, logistics, tourism, and energy.

He said these entities were targeting Hong Kong-listed companies, whose owners are eager to sell their businesses, which are often family-run, amid fierce market competition. Such was the case when COSCO Group and Shanghai International Port bought a majority stake in smaller rival Orient Overseas International Ltd. (OOIL), owned by the Tung family, for $8.39 billion earlier this month. 

Low valuations also prompted some Hong Kong-listed companies to go private, which are often supported by private equity funds from both the mainland and Hong Kong, according to Lo.

A consortium led by Hillhouse Capital Group and CDH Investments, for instance, offered to help privatize Belle International Holdings in a deal that valued the embattled footwear retailer at about $6.8 billion in April. 

E-commerce player Alibaba Group Holding also made a $2.6 billion bid to privatize department store operator Intime Retail Group, which was previously listed on the Hong Kong stock exchange.

While emphasizing that China’s mergers and acquisitions remained robust in 2017, Lo estimated that the total outbound deal value would reach $189 billion by the end of this year, down 15.6% compared to 2016.

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