BEIJING • China's biggest foreign-acquisition frenzy is ending almost as dramatically as it began.

After stunning the world with a record US$246 billion (S$347 billion) of announced outbound takeovers last year, Chinese dealmakers are now struggling to cope with tighter capital controls and increasingly wary counterparties.

Cross-border purchases plunged 67 per cent in the first four months of this year, the biggest drop for a comparable period since the depths of the global financial crisis in 2009, according to data compiled by Bloomberg.

Analysts see few signs of a rebound as Chinese regulators make it difficult for acquirers to move money overseas. Foreign sellers have also thrown up new hurdles after getting spooked by a string of cancelled deals.

Some are forcing suitors to pay unusually large penalties if offers fall through, while others are shunning Chinese bids in favour of lower- priced offers from elsewhere. "China's outbound M&A (merger and acquisition) activity will likely remain slow for the rest of this year," said Ms Boo Bee Chun, partner at Baker & McKenzie.

The drop-off in deals should help stem capital flight and stabilise China's battered currency.

But it could also undermine a big pillar of support for corporate valuations worldwide. Last year's 137 per cent surge in Chinese takeovers vaulted the country to No. 2, behind the United States, on the ranking of global acquirers.

Cooling off the buying frenzy has become a policy priority in Beijing. Through the end of September, the authorities plan to curb offshore acquisitions of US$1 billion or more in industries outside a buyer's core business, people with knowledge of the matter said last November.

They will also ban most investments of US$10 billion or more and restrict foreign property purchases exceeding US$1 billion by state- owned enterprises, the people said.

Even previously announced deals are vulnerable. Chinese developer Shandong Tyan Home in April blamed capital controls for backing out of talks to a stake in an Australian mine for US$1.3 billion.

There are exceptions. HNA Group, a Chinese aviation-to-hotels conglomerate, has embarked on a flurry of overseas purchases this year - ranging from a nearly 10 per cent stake in Deutsche Bank to the US$1 billion takeover of Singapore logistics provider CWT.

To get around capital controls, some acquirers have tried to secure financing from the overseas branches of Chinese lenders by pledging their onshore assets as collateral, according to law firm Clifford Chance. Other strategies include pursuing smaller deals and teaming up with offshore private equity firms, said Ms Boo.

Still, many sellers are growing wary. To protect against the risk of an offer falling through, they are asking Chinese acquirers to agree to break fees of as high as 10 per cent of the deal's value, up from around 2 per cent previously, said Ms Violet Ho, senior managing director for greater China at Kroll, a New York-based risk consultancy that provides due diligence on mergers and acquisitions.

Given the headwinds facing Chinese acquirers, deal volume is likely to end the year 40 per cent to 50 per cent below the 2016 level, according to Linklaters managing partner for China Fang Jian.

Mr Terence Foo at Clifford Chance said: "We're expecting fewer mega-sized deals and the volume of Chinese outbound acquisitions may drop significantly.

"Foreign sellers have become more sceptical."

BLOOMBERG