US toughens stance on foreign deals in blow to China's buying spree

US Secretary of the Treasury Steven Mnuchin waits for a US and China comprehensive Economic Dialogue at the US Department of the Treasury on July 19, 2017.
US Secretary of the Treasury Steven Mnuchin waits for a US and China comprehensive Economic Dialogue at the US Department of the Treasury on July 19, 2017.PHOTO: AFP

WASHINGTON (REUTERS) - A secretive government panel in the United States has objected to at least nine acquisitions of US companies by foreign buyers so far this year, people familiar with the matter said, a historically high number that bodes poorly for China's overseas buying spree.

The objections indicate that the Committee on Foreign Investment in the United States (CFIUS), which reviews acquisitions by foreign entities for potential national security risks, is becoming more risk-averse under US President Donald Trump.

Chinese companies and investors eyeing US assets could face more roadblocks as a result, at a time when the Chinese government is also restricting the flow of capital out of China following a bonanza of Chinese overseas deals.

There have been 87 announced acquisitions of US companies by Chinese firms so far in 2017, the highest on record and up from 77 deals in the corresponding period in 2016.

CFIUS's more conservative stance towards deals coincides with growing political and economic tensions between the US and China. On Wednesday, the two countries failed to agree on major new steps to reduce the US trade deficit with China.

Since the start of the year, CFIUS has sent letters to companies involved in at least nine deals to say they would be blocked based on measures they have proposed to address potential national security risks, said the people familiar with the matter.

Many of these deals are in the technology sector, the sources said. A rise in cyber-security threats and rapid advances in technology makes it more difficult to establish whether a deal poses any threat, lawyers who represent companies before CFIUS said.

An initial objection by the watchdog does not necessarily kill the deal immediately.

Some companies this year have chosen to keep their CFIUS filings alive by proposing new mitigation measures, while others have pulled their applications and cancelled their deals, the people said. They asked not be identified because interactions between CFIUS and the companies are confidential. "CFIUS decisions are highly sensitive and we are not going to comment on rumours of their outcome," a White House spokesman said.

A spokesman at the Treasury Department declined to comment. Treasury leads CFIUS with Treasury Secretary Steven Mnuchin serving as chairman.

Most of the deals that CFIUS has sought to block this year have not been announced. Among the companies that have disclosed they have withdrawn their CFIUS applications and cancelled their deals are US electronics maker Inseego Corp, which tried to sell its MiFi mobile hotspot business to Chinese smartphone maker TCL Industries Holdings; and Texas oil producer ExL Petroleum Management LLC, which sought to sell its assets to Russian billionaire Mikhail Fridman's L1 Energy.

By comparison, in the entirety of 2014, the last year for which CFIUS has released official data, nine deals were withdrawn after CFIUS began an investigation.

Several more companies face protracted CFIUS reviews amid delays after Trump took office in filling important mid-level political positions at several of the 16 government departments and agencies that comprise CFIUS.

CFIUS is on track to review a record-setting 250 to 300 transactions in 2017, according to Anne Salladin, a CFIUS expert with the law firm Stroock and Stroock and Lavan LLP - up sharply from 147 deals in 2014.

The backlog is leading many companies that fail to gain CFIUS clearance within the standard 75 days allocated for review to refile their applications. Refiling resets the clock and gives up to another 75 days to complete the national security review and try to resolve potential issues.

A number of companies have said in regulatory filings that their high-profile deals are before CFIUS.

They include Chinese payments company Ant Financial's US$1.2 billion (S$1.64 billion) acquisition of US money transfer company MoneyGram International Inc and China-backed buyout fund Canyon Bridge Capital Partners LLC's US$1.3 billion acquisition of US chip maker Lattice Semiconductor Corp.

In addition, investment firm China Oceanwide Holdings Group Co Ltd's US$2.7 billion acquisition of US life insurer Genworth Financial Inc and China-based semiconductor investment fund Unic Capital Management's US$580 million acquisition of US semiconductor testing equipment company Xcerra Corp are also with the watchdog.

Ant Financial has refiled its MoneyGram deal with CFIUS once, while Canyon Bridge and China Oceanwide have refiled their deals twice, according to company disclosures and Reuters reports. Unic is still on its first filing with CFIUS on its Xcerra deal, company disclosures and Reuters reports showed.

Of the two dozen political appointee positions in the Treasury Department, just three have been confirmed by US lawmakers. A key CFIUS nomination is that of former Allen & Overy LLP lawyer Heath Tarbert, who has been appointed as Assistant Secretary of the Treasury for international markets and development, and has yet to be confirmed.