China firms cashing out of overseas bets at near-record pace

Companies in China announced divestment plans of their overseas assets worth $14.1 billion so far this year. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - 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 US$10.5 billion (S$14.1 billion) so far this year, the second-highest total since at least 1998, according to data compiled by Bloomberg. At the current pace, this year could surpass last year's US$15 billion sum.

"These days Chinese companies are proactively looking at their asset portfolios, rather than simply buying," Mr Bagrin Angelov, head of China cross-border mergers and acquisitions at China International Capital Corp (CICC), 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 state-backed Beijing Capital Group and Beijing Enterprises Holdings considering sales of their overseas holdings. China Tianying in June agreed to sell its Spanish waste management company Urbaser for US$1.8 billion.

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 coronavirus pandemic, searching for profitable assets amid low interest rates.

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

China Three Gorges is nearing a deal to sell a 25 per cent stake in its overseas renewable energy asset portfolio that could be valued at as much as US$2 billion, sources familiar with the matter have said.

"It's good timing for these companies to monetise," Ms Miranda Zhao, head of mergers and acquisitions 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."

Foreign Scrutiny

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

Last year, Australia, India and the European Union all tightened their rules for screening takeover proposals by foreign firms, moves widely seen as targeting China. As a result, overseas acquisition volumes by the country's firms fell.

China's Creat Group 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 United States 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 British government opened a probe in July into the takeover of the country's biggest chip plant by Chinese-owned Nexperia NV.

"It's one but not the only factor to consider," said Natixis' Ms 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 burned 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 Inter Milan. 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 £8 billion (S$14.9 billion), 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 (mergers and acquisitions) activities were Chinese companies buying assets, which was simply one-directional," said CICC's Mr 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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