Currencies

Renminbi strengthens further despite gains by dollar

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Financial

Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

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Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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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.