Mainland firms eye takeover deals

PUBLISHED : Tuesday, 27 September, 2011, 12:00am
UPDATED : Tuesday, 27 September, 2011, 12:00am

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More than 75 per cent of mainland financial institutions plan to have or are mulling mergers and acquisitions (M&As) in the next 12 months, according to a PricewaterhouseCoopers survey.

Survey respondents from the mainland remained bullish even though the deal value of M&As between financial institutions have fallen by almost 30 per cent in the first half of this year from a year ago, the survey of 375 senior executives in the financial services industry in 13 Asian countries showed.

The level of optimism was in stark contrast with the mood elsewhere. In the third quarter, global M&A volume in the finance sector declined to US$51.1 billion, the lowest quarterly level since the fourth quarter of 2004, according to Dealogic.

The survey, conducted in May and June, covered financial services companies such as investment banks, commercial banks, insurance companies and private equity firms.

'Chinese institutions have mostly sat on the sidelines of global financial services M&A since the crisis, but as we enter a new period of volatility, there are signs that some may buy strategic assets at a bargain,' said Matthew Phillips, head of financial services M&A at PricewaterhouseCoopers China. Mainland respondents said they thought most M&A activities in the sector would take the form of mainland companies venturing into the Asia-Pacific region and global companies tapping into Asian markets. There would be fewer transactions between domestic institutions, they said.

Investment banking was the most attractive business, said mainland and Hong Kong respondents. Corporate banking and capital market business were second and third respectively for mainland respondents, while Hong Kong executives favoured investment management and life insurance.

However, given the current doldrums in the global markets, the economic outlook might be less rosy than the survey suggests, Phillips said. 'The current uncertainty does lead you to question the very high levels of interest we saw in capital markets and investment banking in Hong Kong and China,' said Phillips, adding that he would still expect financial businesses such as investment banking to be important over the coming year.

Several companies recently shelved their share offerings in light of the current market volatility. Sany Heavy Industry delayed a US$3.3 billion Hong Kong stock sale. XCMG Construction Machinery, which trades in Shenzhen, put off a HK$1.5 billion share offer last week. Xiao Nan Guo Restaurants Holding scrapped a HK$581 million listing, while China Everbright Bank pulled a US$6 billion offering last month.

The mainland's financial services M&A volume was the largest in Asia last year, at US$16.7 billion, while the M&A volume for the city reached US$5.5 billion.

Citic Securities' planned US$374 million investment in CLSA's brokerage business was among the most significant deals announced in the first half of this year among Hong Kong financial institutions.

$100b

The amount, in US dollars, of Chinese outbound direct investment by 2012-13, the Economist Intelligence Unit estimates