China’s outbound M&A volumes nearly halved in the first six months of 2017 following Beijing’s crackdown on capital outflows, data showed, and its new scrutiny of acquisitive groups, including Anbang and HNA, is set to dampen Asian dealflow further.
Overseas deals by Chinese companies – the engine of M&A activity in Asia – fell 49 percent in the first half of 2017 from the year-ago period to $64.2 billion, dragging down regional deal volumes, according to Thomson Reuters data.
The total value of announced M&A activity in Asia Pacific fell 15 percent in the first half of this year to $458.4 billion from the year-ago period, the data showed. China was the top nation for both inbound and outbound deals in Asia Pacific for the half-year, attracting $28.5 billion worth of inbound deals.
A slowdown in Chinese deals, especially large-sized ones, could inflict further pressure on Asian revenues of Wall Street banks, who are already feeling the pain of growing competition from Chinese investment banks. M&A is among the few areas where Chinese banks haven’t already gained a strong foothold.
Chinese firms spent a record $221 billion on assets overseas, ranging from movie studios to football clubs in 2016, but Beijing’s move to prop up the yuan by restricting capital outflows has made it tougher for buyers to win deals abroad.
China’s banking regulator tightened the screws further last week, ordering a group of lenders to assess their exposure to offshore acquisitions by several big companies that have been on an overseas buying spree, two people familiar with the matter said.
“The latest crackdown takes away people from the market who were very active on the M&A scene and creates a sense of uncertainty. You will see the impact on volumes,” said an Asia financial institutions M&A banker at a large European bank.
The elevated regulatory hurdles for Chinese buyers to get their cash out of the country have caused delays and even withdrawals of a number of China outbound M&A transactions targeting U.S. and European assets.
“The sellside needs to ascertain the credibility of a buyer (from China). The second thing is to address any questions around certainty, in particular funding and approvals,” said John Kim, head of M&A for Asia ex-Japan at Goldman Sachs.
Still, Chinese state-owned firms struck some of Asia’s top deals in the first half. China Investment Corp wrote a 12.25 billion euros ($13.93 billion) cheque to acquire European warehouse firm Logicor from private equity group Blackstone, the region’s largest during the first half.
But this year is unlikely to see any blockbuster deals such as last year’s around $44 billion ChemChina-Syngenta tie-up. Bankers instead expect more activity to be driven by private equity firms which have plenty of capital after a busy fundraising period in 2016.
They are already heavily involved in some of Asia’s most high-profile takeovers and take-private deals, including the potential sale of Singapore-listed warehouse operator Global Logistic Properties Ltd, which will likely be the region’s biggest buyout this year.