Beijing's scrutiny hits M&A activity in region

Outbound transactions in Asia-Pacific nearly halved

HONG KONG • Asia-Pacific dealmaking activity slipped this year as outbound transactions nearly halved, led by China as Beijing increased scrutiny of cross-border investments and clamped down on some of its most acquisitive - and indebted - conglomerates.

Chinese overseas mergers and acquisitions (M&A) investments slumped by more than a third to US$140 billion (S$187 billion) this year from a record last year, data from Thomson Reuters showed, and investment bankers expect the dealmaking environment to remain cautious in 2018.

Chinese companies have faced lengthy approvals for their outbound deals after Beijing tightened capital controls late last year in an effort to stabilise a weakening yuan. Sectors such as real estate, sports and media that previously saw heightened activity were hit particularly hard as investments in them were labelled "irrational".

"People are treading carefully amid capital controls. They don't want to be too flashy," said head of Asia M&A at UBS Samson Lo.

Overall, M&A volume in Asia-Pacific - involving either a target or an acquirer in the region - hit US$1.08 trillion in 2017, down 4.3 per cent from last year, the data showed.

Activity outside China was propped up by banner transactions, such as French property firm Unibail-Rodamco's US$24 billion purchase this month of Australia's Westfield Corp. It was the third consecutive year that Asia-Pacific dealmaking surpassed US$1 trillion.

The region's outbound deals, however, plunged 46 per cent, hurt by China's retreat from global dealmaking compared with the record US$218 billion the country did last year.

Chinese overseas mergers and acquisitions (M&A) investments slumped by more than a third to US$140 billion (S$187 billion) this year from a record last year, data from Thomson Reuters showed, and investment bankers expect the dealmaking environment to remain cautious in 2018.

Some of China's most acquisitive conglomerates, such as Dalian Wanda and HNA Group, whose recent growth was largely based on overseas purchases, have struggled to roll over the debt that fuelled those buys as lenders focused on overall high debt levels.

Overseas regulators also stepped up scrutiny of Chinese buyers this year. US President Donald Trump blocked Chinese-backed private equity firm Canyon Bridge in September from buying US-based chipmaker Lattice Semiconductor Corp citing potential national security threats.

This month, New Zealand turned down HNA Group's US$460 million purchase of a vehicle finance firm owned by Australia and New Zealand Banking Group, citing uncertainty over HNA's ownership structure.

Despite these challenges, China's US$140 billion outbound volume this year is still its second largest in history, the data showed, as it continued to seek advanced technology and investments related to its Belt and Road Initiative.

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 30, 2017, with the headline 'Beijing's scrutiny hits M&A activity in region'. Print Edition | Subscribe