Citi eyes horizon for Chinese M&A flood
Chinese firms are on the prowl for global assets in natural resources, technology and well-known brands, according to a top official of Citigroup, the bank behind the biggest overseas acquisition by a closely held mainland company.
In May, Citigroup advised debt-laden US cinema operator AMC Entertainment Holdings, which had been shopping for a buyer for about two years, to accept a US$2.6 billion takeover offer from China's Dalian Wanda Group, a property-to-entertainment company.
Farhan Faruqui, Asia-Pacific head of corporate and investment banking at the New York-headquartered bank, said Citigroup had set up 25 so-called China desks in major international cities from Rio de Janeiro to Johannesburg to serve the growing outbound mergers and acquisition (M&A) business from China.
'When we mean global, it means really global,' Hong Kong-based Faruqui said. 'It doesn't mean that we just sit in our Hong Kong office and we will call ourselves global.'
He added that he travelled for about 70 days in the second quarter of this year mainly to visit clients, including many Chinese ones with offices outside China.
The AMC-Wanda deal, which is subject to regulatory approval, will create the world's largest cinema operator, with more than 6,000 screens, mostly in the US and China. It was struck just three months after Vice-President Xi Jinping visited the United States in February, when he called for more Sino-US co-operation in the cinema and culture sectors.
Faruqui expects the proposed takeover to win regulatory clearance in both China and the US, making Wanda the only cinema operator with major market shares in the world's two largest economies.
The AMC-Wanda deal, Faruqui noted, reflected two things Chinese firms most wanted in a global asset: a big brand name and a distribution network. Chinese investors also remained keen to make offshore acquisitions in their traditional areas of natural resources and advanced technology, he added.
Faruqui said European and the US firms were likely to be of more interest to Chinese suitors for their technology and market access while Latin American and African companies were of greater interest for their natural resources.
'The need for Chinese companies to get [natural] resources will continue,' he said.
'Chinese companies have the [financial] ability today and they also have the willingness to buy.
'I think the only question is price. What price does make sense for you to transact?'
Regarding M&A opportunities in Europe, Faruqui said Chinese investors might wait for the euro-zone's economic and debt troubles to stabilise. But that there could be several 'trigger points' on the macroeconomic front that might suddenly push more deals to be struck.
Despite growing interest from Chinese companies, few major transactions have taken place. Official data released last week show total foreign direct investment from the mainland fell last year for the first time in nine years as the eroding value of businesses in developed nations put M&A plans on hold.
'It's going to be a function of what is going to happen [to the euro-zone crisis] in the next three to four months,' Faruqui said.
'Something is happening but you just haven't seen the flood of M&A deals,' he said.
'[But] you will see it.'
The drop in foreign direct investment from China in 2011
- Total FDI from China that year was US$65.12 billion