Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Currencies, Equities

Scary movie sequel beckons for eurozone markets

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Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

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Categorized | Currencies

The buying spree behind Beijing’s crackdown

Posted on November 29, 2016

The days when a Chinese iron ore miner could buy a UK video game developer are drawing to a close as Beijing tightens up on cross-border investment by its companies.

Investment banks in Asia have worked overtime this year on bringing an expansive range of acquisition targets to aggressive Chinese groups, many of which have strayed far beyond the acquirers’ original scope of business.

According to commerce ministry data, overseas purchases by Chinese companies have surged past last year’s record of $121bn for non-financial outbound investments, reaching $146bn over the first 10 months of 2016.

The spree in the past few years has seen an airline buy a financial services business, an insurer move into the global hotel industry and a shopping centre developer purchase a blood bank. Most notably, Shandong Hongda, a lossmaking Chinese iron ore miner agreed to buy UK game developer Jagex earlier this year.

Beijing is seeking to cut back on such activity, which is thought to have helped some investors move billions of dollars offshore as the country’s currency depreciates and its economy slows.

The State Council plans to issue a circular that will tighten regulations on Chinese groups that acquire overseas companies that have little to do with their core business. Such acquisitions worth more than $1bn would not gain regulatory approval, according to two people that have seen a draft of the document.

It has also proposed stricter approval requirements for cross-border deals worth more than $10bn and on state-owned enterprises investing more than $1bn in foreign real estate, according to the two people.

“There have been a lot of deals that don’t make strategic sense. [A crackdown on capital controls] would be a reaction to that,” said a senior M&A banker based in Hong Kong. “If the deal is strategic and it’s good for ChinaChina, it can still get done.”

During 2016, Chinese companies agreed 33 acquisitions valued at more than $1bn each. At the start of November only seven of those deals had been completed, according to an analysis of data from Thomson Reuters. Six Chinese acquisitions announced since 2008 have surpassed $10bn. ChemChina’s buyout of Swiss agribusiness group Syngenta, which was announced in February but is still awaiting regulatory approval in Europe, topped the list at $44bn.

Some banks have already reacted to companies viewed as having “aimless” expansion plans, by removing them from target client lists and curtailing access to loans.

One Chinese bank recently removed HNA Group from its list of target clients following concerns over the company’s acquisition strategy and that some of its deals would not be sealed this year, according to a senior banker. “They have announced deals that likely will not be completed,” the banker said. HNA could not immediately be reached for comment.

Over the past two years HNA, which has its roots in the airline industry and bought a Chinese financial services company Yisheng Financial Services Holdings this year, has announced $33bn in cross-border acquisitions. Earlier this year, it agreed to pay about $6bn for Ingram Micro, a US-based software distribution company. Last month, it said it would pay a similar sum for a 25 per cent stake in Hilton Worldwide Holdings, the US hospitality group. The completion of both of those deals, along with several others, is still pending.

Anbang Insurance has been flagged by some banks as a potential risk when offshoring cash for acquisitions. Anbang’s attempt at a $14bn buyout of US group Starwood Hotels and Resorts came crashing down after running into regulatory troubles in March. The same month it agreed to buy Strategic Hotels & Resorts, another US group, for $6bn.

Shopping centre developer Sanpower Group has bought up a number of foreign assets over the past three years, including House of Fraser, the UK retail group, US novelty gadget maker Brookstone and Israeli healthcare provider Natali. Late last year, it agreed to buy New York-listed life sciences company China Cord Blood for $1.4bn.

Regulators have already tightened the channels for offshoring capital for deals, according to lawyers familiar with cross-border transactions. One Hong Kong-based lawyer said that Chinese regulators such as the State Administration of Foreign Exchange had recently increased the time it took to process applications, effectively killing some time-sensitive deals. In some cases “they don’t reject the application, they just don’t respond”, the person said.