Mainland still expanding global investments

PUBLISHED : Tuesday, 16 August, 2011, 12:00am
UPDATED : Tuesday, 16 August, 2011, 12:00am


Investments overseas by deep-pocketed mainlanders will hit new records if the strong growth in the first half is maintained for the rest of the year.

While a second global financial crisis could stall some deals already in the pipeline, accounting giant PricewaterhouseCoopers said the outlook was still optimistic.

Outbound merger and acquisition (M&A) activity by mainland buyers rose 14 per cent year on year to 107 transactions in the first half of this year, although only three deals exceeded US$1 billion, compared with 12 such major deals for the whole of last year.

The firm's Greater China Private Equity Group leader, David Brown, said a number of larger deals may be announced in the second half of the year.

'It's too early to tell if [the downgrade in the United States' credit rating and the recent market volatility] would have any impact on M&A activities. We need one to two months to see whether the economy comes out on the up side or the down side,' Brown said. 'Right now we see a number of deals in the pipeline.'

A number of deals and initial public offerings were shelved after Lehman Brothers' collapse in late 2008, but the recent downturn should offer good buying opportunities unless market conditions deteriorate further, he said.

The number of Chinese outbound investment deals could reach 214 by the end of the year if growth momentum continued, PWC predicted. Last year, there were 188 such transactions.

Europe and Russia overtook the US as the most popular region for Chinese investments during the first half of the year, with the number of deals doubling year on year to 30 from 14. There was just one Chinese M&A deal in Africa and one in South America during the half, compared with eight in Africa in the year-earlier period, and five in South America.

Brown said this was not enough to indicate a trend, and believed Chinese investments in Africa and South America would rise again during the second half. But he said mainland investors preferred investing in developed nations in Europe and North America so they could bring technology, know-how and brands back to their own country.

The number of acquisitions relating to machinery manufacturing and consumer-related companies nearly doubled during the first half.

The Chinese government's move to tighten liquidity meant mainland investors - especially small and medium-sized enterprises - were keen to raise funds through private equity. The number of private equity deals exceeding US$10 million in value therefore jumped 31 per cent year on year to 130 in the first half.

There were also 27 deals with a value more than US$100 million over the same period, compared with 44 for the whole of last year.

Nearly 80 per cent of deals were initiated by funds from the mainland, Hong Kong and Macau, while foreign funds made fewer transactions but of larger value. Industrial, financial services and retail businesses topped the list of private equity investors on the mainland. Together, the three sectors drew US$8.1 billion in capital, making up more than half of the total US4.3 billion raised during the first half of the year.