Overseas firms are flocking to the mainland as it offers more attractive deals and a larger population Foreign investors have shunned Hong Kong companies in the past six months in favour of mainland firms, a study has revealed. The study, by KPMG Corporate Finance and based on data provided by Dealogic, showed Hong Kong was the second-most active merger and acquisition (M&A) market in Asia-Pacific in the first half. Its US$8 billion worth of deals was higher than China's $6.2 billion but below the $14.4 billion of Japan. But the figures include inbound and outbound investment, and KPMG's head of corporate finance for Hong Kong and China, Gavin Geminder, said Hong Kong's high figure was the result of firms carrying out privatisation plans or restructuring. It was also because foreign investors had disposed of stakes in Hong Kong firms, such as Cable & Wireless' PCCW sell-out. No foreign investor had paid more than US$100 million to buy stakes in Hong Kong companies in the past six months, Mr Geminder said. The largest purchase involving a foreign investor was Washington-based satellite firm Intelsat, which spent US$70 million buying a 51 per cent stake in pay-television operator Galaxy Satellite from Television Broadcasts. Singapore's DBS had exercised call options to buy a stake in Dao Heng Bank for US$2 billion at the beginning of the year, but that was only a follow-up to a takeover deal made two years ago, Mr Geminder said. 'This shows a lot of deals are going to China instead of Hong Kong. It has been a trend for some time and will continue in future,' he said. Mr Geminder said some of the deals involving overseas firms buying stakes in mainland companies included Nissan Motor paying US$1.03 billion to take a 50 per cent interest in Dongfeng Motor and United States-based Anheuser-Busch spending $35.8 million to increase its stake in Tsingtao Brewery from 4.5 per cent to 9.9 per cent. 'Hong Kong is a mature market, while China is in the process of opening up to foreign investors. Also, the 6.8 million population of Hong Kong is much smaller than the 1.3 billion of China,' Mr Geminder said. 'This has made Hong Kong companies less attractive than Chinese firms.' However, Hong Kong's falling property prices and valuations meant many firms could now be bought for a lower price, making them more attractive to investors. Globally, Mr Geminder said M&A deals were down 33 per cent to 7,324 in the first half from 10,943 last year. The value of deals dropped 18.7 per cent year on year, from US$571 billion to $464 billion, while in Asia, the number of deals declined 49 per cent. 'Given the Iraq conflict and Sars, it is not surprising that we are now looking at the sixth consecutive half-yearly drop in M&A figures,' Mr Geminder said. He believes that while there will be an improvement in the second half, the full-year M&A figures will probably be lower than last year.