Japan Inc could claim edge in overseas deals as China faces restraints

TOKYO/SINGAPORE (REUTERS) - Japan Inc may become a more important force in dealmaking next year as its cashed-up companies seek to buy growth prospects elsewhere in the world and as Beijing's crackdown on capital outflows prevents some Chinese companies from making foreign acquisitions, bankers and lawyers said.

Facing tepid prospects at home after decades of stagnation amid a shrinking population, Japanese companies had spent US$93 billion (S$134.5 billion) overseas this year, up to Dec. 19, little changed from a record US$96 billion in all of 2015, but up from just US$51 billion in 2013, Thomson Reuters data shows. Chinese companies have spent US$217 billion so far in 2016.

With Japanese companies hoarding a record US$3.2 trillion in cash, according to government data, outbound acquisitions are expected to maintain a fast pace next year, the bank and law firm sources said.

And while the recent weakening of the yen against the dollar will make American acquisitions more expensive in yen terms, it does mean that Japanese companies will tend to be earning more of the Japanese currency from overseas assets.

Among recent deals, Asahi Group Holdings this month beat rivals, including China Resources, to buy Anheuser-Busch InBev's eastern European beer brands for 7.3 billion euros (S$10.9 billion).

China's State Administration of Foreign Exchange is vetting transfers abroad worth US$5 million or more, and in particular is increasing scrutiny of major outbound deals to curb capital outflows that are hurting the value of the yuan, sources have told Reuters.

"Japanese buyers have a low cost of capital, strong cash balances and a strong appetite to diversify out of their home market," said Mayooran Elalingam, Deutsche Bank's head of Asia-Pacific M&A in Hong Kong. "At the same time, they do not have the regulatory or political constraints of a Chinese purchaser."

Japan's cashed-up insurers are likely to step up their aggressive hunt for overseas businesses, the bankers said. For example, Meiji Yasuda, Japan's third-largest private sector insurer by assets, is attracted to Australia and New Zealand Banking Group's life insurance and wealth businesses, said a source close to the unlisted Tokyo-based company.

Japanese beverage makers could buy abroad, an M&A banker at a European investment bank told Reuters, citing Suntory Holdings Ltd and Kirin Group Holdings Ltd. Kirin and Asahi Group Holdings are among investors who have expressed an interest in buying stakes in Saigon Beer Alcohol Beverage Corp, or Sabeco, Vietnam's biggest brewer, and its smaller rival Habeco.

Kirin declined to comment. Suntory said it was not considering any specific deals and was instead focused on integrating its 2014 purchase of Beam, the maker of Jim Beam bourbon whiskey among other alcoholic drinks.

An Asahi spokesman said it was "looking with interest" at Sabeco and Habeco. Sabeco declined to comment and Habeco did not respond to a Reuters request for comment.

The Japan-China rivalry may also play out in the natural resources sector next year, said Alexis Papasolomontos, an M&A partner at law firm Herbert Smith Freehills. The sector is traditionally favoured by China but of growing interest to Japan.