Mergers & Acquisitions

Mergers & Acquisitions

Hong Kong overseas M&As highest since 2001, as mainland’s tumble 85pc amid tighter capital controls

HK firms pour US$15.5 billion into outbound M&As in the first three months, led by Cheung Kong’s US$9.8 billion purchase of Australia-based Duet Group

PUBLISHED : Wednesday, 12 April, 2017, 8:47am
UPDATED : Wednesday, 12 April, 2017, 1:08pm

Outbound mergers and acquisitions (M&As) from Hong Kong companies reached record levels in the first quarter, as firms poured US$15.5 billion into overseas market – the highest total since 2001, Mergemarket data shows.

Overseas M&A activity by mainland companies cooled drastically, however, as government capital outflow controls tightened since the second half of 2016, it said.

Chinese companies made 80 outbound M&A deals worth US$12.5 billion in the first quarter, compared with US$82 billion during same period last year, while deal count also dropped from 96.

“As an offshore financial centre with less influence from the capital outflow controls imposed by Chinese regulators, Hong Kong continues to have robust outbound appetite,” the report said.

That US$15.5 billion spent by Hong Kong firms involved 23 deals, beating any previous quarters measured by Mergermarket by at least US$ 5 billion.

Topping the deals was a US$9.8 billion bid made by a consortium led by Cheung Kong Property to take over Australia power provider Duet Group.

That was followed by Chow Tai Fook Enterprises’ US$3.1 billion deal to acquire Australian utilities giant Alinta Energy. The two accounted for 83.2 per cent of total outbound value in the first quarter, with a combined US$12.9 billion investment into Australian assets.

Chinese regulators have been tightening outbound M&A approvals and capital outflow, as the yuan continued to depreciate, since the second half of 2016.

“In terms of deal nature, those below US$ 5 billion in value would stand a higher chance of getting approved [in China]. Sectors on the watch list of regulators range from real estate to leisure, such as property, hotels, cinemas, entertainment and sports clubs,” the report said.

The largest outbound deal from China so far this year was Ant Financial Services Group’s US$1.5 billion acquisition of US-based MoneyGram.

But that was a fraction of the size of largest deals in the first quarters of the last two years, led by ChemChina in their US$ 45.9 billion Syngenta deal in Q1 2016, and US$ 8.8 billion Pirelli deal in Q1 2015.

Inbound interest by companies from outside of China and Hong Kong in the region has also slowed to the lowest level in in a decade by number of deals, the report shows.

Just 23 deals worth a US$ 3.2 billion were made in the first three months, making it the worst performing quarter since the first quarter in 2004, when only 18 inbound deals totaling US$ 2.2 billion were recorded, the report said.

“Despite China’s open policy for foreign investment, capital outflow controls imposed by the regulators has also affected overseas investor appetite, especially when returning profits from China to overseas shareholders has becomes such a concern,” the report said.