China’s foreign exchange watchdog shows red card to overseas football club takeovers

Firms are using overseas club acquisitions as a cover to transfer assets overseas, says State Administration of Foreign Exchange head Pan Gongsheng

PUBLISHED : Monday, 20 March, 2017, 4:51pm
UPDATED : Monday, 20 March, 2017, 11:00pm

China’s foreign currency watchdog has accused domestic companies of transferring assets overseas, under the cover of football club acquisitions, in another strong signal officials are determined to clamp down on foreign deals, particularly in the sports and entertainment sectors.

Pan Gongsheng, the head of the State Administration of Foreign Exchange (SAFE) and also a deputy governor of the central bank, told a forum over the weekend he questioned the business sense of the some recent deals, labelling them as simply ways of getting around China’s tightening rules on capital flight.

“A number of Chinese companies have acquired football clubs or shares in clubs overseas in the past year. It would be [considered] a good deed if the deals help to improve the quality football in China. But is it that really the main reason?” Pan told the China Development Forum, Shanghai Securities News reported on Monday.

“A lot of Chinese companies already have high levels of debt, but still borrow large sums to make overseas purchases. Others pretend to be investing, but are actually just moving their assets out of the country,” Pan said.

One of the highest-profile football deals involved Tony Xia Jiantong, the Chinese businessman who runs the Recon Group, who took over English championship club Aston Villa for £60 million (US$74.35 million) last May.

But Xia insisted at the time that his company was neither burdened by high levels of debt, and had “no necessity” to transfer assets overseas either.

Meet Tony Xia Jiantong, the 40-year-old Chinese businessman who just bought soccer club Aston Villa for HK$683.5m

Recon’s official website describes itself as a multinational conglomerate operating in six core business sectors, ranging from new energy to smart city technologies. It also owns a controlling interest in five publicly listed companies on the Hong Kong and Chinese stock exchanges, in addition to several private companies employing 35,000 people in 75 countries.

Wanda property tycoon Wang Jianlin bought a 20 per cent share of Spanish powerhouse Madrid Athletico for 45 million (US$48.3 million) in 2015.

Then in December that year, a consortium led by state-backed China Media Capital took a US$400 million stake in high-spending Manchester City.

There were five major football club deals involving Chinese companies in 2016, but the authorities have made it clear they intend clamping down on such acquisitions since the end of the year, as capital outflows had led to a sharp depreciation in the yuan, draining the country’s foreign currency reserve.

The biggest deal, however, was announced by little-known Sino-Europe Sports, a new Zhejiang province-registered company, which in August last year said it had agreed to buy a 99.93 per cent stake in former Italian prime minister Silvio Berlusconi’s AC Milan, a giant name in the world game, for 740 million.

But market sources are now saying the company may fail to close the acquisition, as its former state-owned business partner Haixia Capital Management has withdrawn its support for the takeover after regulators in China stepped up their scrutiny of outbound investments, particularly those focused on sports and entertainment.

Italian newspaper La Repubblica reported last Friday that the Chinese consortium might be considering backing out altogether, with honorary president Berlusconi still planning to keep the 200 million already invested by the Chinese side, regardless, while remaining at the helm of the club, nicknamed the “Rossoneri”, or Red and Blacks.

The deadline for the takeover to be completed remains fixed at April 7.

China’s efforts at controlling capital flight appear to be taking effect, according to the latest figures, which show non-financial outbound investment fell 52.8 per cent for the year to February compared to the same period last year, the Ministry of Commerce said on Thursday.

Investment in property, sports and entertainment industries saw the biggest decline. In property, investment fell 84.9 per cent, while in the sports and entertainment sector it plunged 91.6 per cent.

“Overseas mergers and acquisitions can resemble roses among thorns,” Pan told the forum.

“People must act carefully and carry out proper due diligence as well as discussing carefully and proving their genuine worth.”