Beijing seeks to curb global deal-making spree
Chinese worried about capital outflows
BEIJING — After facing opposition around the world to its recent deal-making spree, even China itself is turning against it.
Concerns are mounting in Beijing over a surge in outflows that’s causing further devaluation pressure on the yuan and fears that overeager companies may risk biting off more than they can chew. So now, Chinese regulators plan to generally bar megadeals of $10 billion or more, people with knowledge of the matter said recently.
They will also curb billion-dollar property purchases by state enterprises and large acquisitions outside a buyer’s core business, according to the people. The moves at home could further slow the $234 billion wave of overseas deal-making that’s already struggling with opposition in the U.S. and Europe.
“It’s going to be more challenging for Chinese buyers amid the current global political climate,” said Samson Lo, head of Asia mergers and acquisitions at UBS Group AG in Hong Kong.
A U.S. government panel this month recommended a rejection of the Chinese takeover of German semiconductor supplier Aixtron SE, while the election of Donald Trump as the next U.S. president has some advisers telling Chinese acquirers to wait and see. Meanwhile, Germany’s economy minister has called for European Union measures to give national governments greater powers to block deals.
Companies from China have been announcing foreign purchases at the rate of nearly three a day in 2016, and the value of those deals has almost tripled from a year earlier, according to data compiled by Bloomberg. China now rivals the U.S. as the biggest buyer of overseas companies, the data show.
The Chinese government’s sweeping curbs on that overseas deal-making will see measures slated to last until the end of September 2017, the people with knowledge of the matter said. Regulators will restrict take-privates of overseas-listed Chinese companies using onshore capital, and will pay extra attention to deals by highly leveraged companies, according to the people.
“They are probably trying to send a signal to everyone,” said Brett McGonegal, chief executive officer of Capital Link International Holdings Ltd. in Hong Kong. “What has often been said is that maybe there’s too much M&A going on, and the fact it’s not being placed properly is leading to a huge waste of money.”
China is generally suspending several categories of deals, while still leaving room for some strategic transactions, the people said.
The measures show Chinese policy makers are worried about capital outflows, according to Zhao Longkai, an associate finance professor at Peking University’s Guanghua School of Management.
Estimated outflows in October reached $73 billion, picking up again after having slowed mid-year, according Capital Economics Ltd. Estimates from Bloomberg Intelligence show about $620 billion flowed out in the nine months through September, putting further devaluation pressure on a currency that has lost almost 6 percent of its value this year to the lowest level since mid-2008.
“The Chinese government is preparing to deal with the consequences of a very strong dollar and does not wish to see the yuan depreciate too fast,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong.
Meanwhile, Trump’s election has raised fears about the future climate in the most popular destination for China’s overseas acquisitions. Bankers and lawyers have been counseling deal-hungry Chinese companies to pause planned acquisitions in the U.S. until Trump clarifies his stance on cross-border purchases, three advisers to Chinese clients said earlier this month.
A senior U.S. senator is leading the charge asking the government to block a Chinese aluminum magnate’s purchase of Cleveland-based Aleris Corp. for $2.3 billion including debt. Chinese takeovers have drawn increasing focus from Capitol Hill recently, including China National Chemical Corp.’s record $43 billion acquisition of Syngenta AG.
While the Committee on Foreign Investment in the United States, known as CFIUS, has closely scrutinized technology purchases, some U.S. lawmakers have called for closer attention to Chinese acquisitions in the entertainment industry. Chinese property tycoon Wang Jianlin’s Dalian Wanda Group Co. this month announced the $1 billion purchase of Dick Clark Productions Inc., the television studio behind “So You Think You Can Dance.”
“This new policy shift, and the uncertainties in the global marketplace, could mean that Chinese buyers are more cautious when selecting deals,” Bee Chun Boo, a mergers and acquisitions partner at Baker & McKenzie in Beijing, said by email. “Transactions may take longer to complete due to increased regulatory hurdles.”
In Germany, the government has been conducting an in-depth probe of Osram Licht AG’s sale of its general lamps unit to a Chinese consortium, a move that’s likely to lengthen the approval process by months. Another takeover in the country, Chinese home-appliance manufacturer Midea Group Co.’s purchase of Kuka AG, is currently being reviewed by CFIUS, the German robotics company said last week.