Mergers & Acquisitions

China smashes annual outbound investment record, racking up US$111b in overseas investments in five months

PUBLISHED : Monday, 16 May, 2016, 9:54pm
UPDATED : Tuesday, 17 May, 2016, 12:07am

China has surpassed its annual outbound investment record by a wide margin, amid a surge in overseas acquisitions as companies embrace the go global ethos, despite Beijing’s tightening of capital controls.

Chinese outbound mergers and acquisitions totalled US$111 billion as of May 10, surpassing the full year total for 2015 of US$108 billion, according to Swiss-based investment bank UBS, citing figures from Dealogic.

Last year’s outbound investment figure was the previous record, surpassing US$100 billion for the first time.

“We’ve noticed that Chinese buyers have become more sophisticated and bold in their outbound investments,” said Samson Lambert Lo, managing director and head of mergers and acquisitions at UBS.

Chinese deals overseas account for 26.4 per cent of global mergers and acquisition volume, he added.

State-owned China National Chemical Corporation agreed to buy Swiss crop seeds and pesticides company Syngenta for US$43 billion earlier this year. The deal, which is expected to go through by the end of the year, would be China’s largest overseas acquisition.

Recently, China overtook the US for the first time as the world’s biggest “acquiring nation” in the technology industry, accounting for a 45 per cent share of acquisitions in the sector, according to a Dealogic report in April.

Lo and other analysts say that Chinese companies are interested in investing in a broad range of industries, including consumer products, health-care and technology.

China’s foreign exchange reserves rose in April for a second consecutive month, bringing the balance to US$3.22 trillion, reflecting easing in capital outflows after a five-month decline.

Still, Beijing has been beefing up measures to prevent money outflows.

The State Administration of Foreign Exchange (SAFE), the body overseeing China’s foreign exchange reserves, has become more selective in approving requests from banks for currency swaps to fund offshore transactions, according to a lawyer who specialises in mergers and acquisition deals in Hong Kong.

The lawyer, who preferred not to be named, said that the SAFE has tightened the quota for banks since November, which were usually granted much more freely.

But other analysts say the measures are not likely to negatively impact large Chinese companies.

“Looking at the mega size deals we have this year and how active [the outbound investment] has been, it’s not a problem,” said Lo.

Companies are required to seek approval from a number of regulatory bodies on overseas deals, including the SAFE and China Securities Regulatory Commission, before a deal is given the green light.

Patrick Yip, a national mergers and acquisitions leader at Deloitte China, said that the government’s policy on encouraging enterprises to go global remains intact.

“The fact that [companies] need to get approval means that the government continues to give a nod to these types of activities. It just wants to avoid confusion in the marketplace,” Yip said.

Additional reporting by Xie Yu