M&A deals involving Hong Kong companies hit 4-year high as Covid-19 comes under control

A total of 713 deals worth US$55.4 billion were announced in the first half, the most since US$68.9 billion in the first six months of 2017
Shenzhen-listed courier group SF Holding’s HK$17.6 billion deal for a 51.8 per cent stake in Kerry Logistics was the largest cross-border deal

Mergers & Acquisitions

Enoch Yiu

Published: 8:30am, 5 Jul 2021

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Mergers and acquisitions activity involving Hong Kong companies saw the strongest first half in four years, with the trend likely to continue for the rest of the year as deal-making picked up amid the economic recovery in Hong Kong and mainland China following a tapering of Covid-19 cases.

Some 713 deals worth a combined US$55.4 billion were announced in the first half, a 50.4 per cent increase in value from a year earlier, according to Refinitiv data. It was also the most since the first half of 2017 when transactions totalled US$68.9 billion.

The financial sector contributed the biggest share of the volume at US$12.6 billion, a more than fourfold increase compared to a year earlier. It was followed by real estate, with deals worth US$11.1 billion or 12 per cent lower than a year earlier, Refinitiv data showed.

“There are many international firms that want to use Hong Kong as a gateway to investing in China via mergers and acquisitions,” said Christopher Cheung Wah-fung, a Hong Kong lawmaker who represents the financial services sector. “Likewise, there are many mainland firms that want to buy Hong Kong companies to expand overseas.”

AIA said it plans to acquire a near 25 per cent stake for China Post Group for 12 billion yuan (US$1.86 billion). Photo: Nora Tam

The largest cross-border transaction in the first half was SF Holding’s HK$17.6 billion (US$2.26 billion) all-cash deal to acquire a 51.8 per cent stake in Malaysian tycoon Robert Kuok Hock Nien’s Hong Kong-listed Kerry Logistics Network in February. Shenzhen-based SF Holding, which operates SF Express and is dubbed the FedEx of China, is the largest delivery company for online shopping giants Alibaba Group Holding and JD.com.

Hong Kong’s biggest publicly traded life insurer AIA Group on June 29 announced it planned to acquire a 24.99 per cent stake in the life insurance arm of China Post Group for 12 billion yuan (US$1.86 billion) as it continues to expand its presence in mainland China.

“The trend will continue as China is the first major economy to come out of the Covid-19,” Cheung said. “The country is opening up its market to the international world, which will attract more M&A deals.”

CK Asset’s shares had underperformed the Hang Seng Index before the buy-backs were announced. Photo: Dickson Lee

Meanwhile, Hong Kong-listed companies have been also been resorting to share buy-backs to support their underperforming stocks. WH Group, the world’s largest pork producer, in June said it would use HK$14.95 billion (US$1.93 billion) to buy back 13 per cent of its capital at a premium.

WH Group’s share price has fallen 0.8 per cent in the 12 months to June 1 before it announced the buy-back, while the Hang Seng Index has risen 23 per cent during the same period.

CK Asset Holdings, one of the listed flagships of Hong Kong’s richest man Li Ka-shing, plans to spend HK$19.4 billion to buy back 380 million shares at HK$51 each, according to stock exchange filings in March and April. In the 12 months before the share buy-back was first announced on March 18, CK Asset shares fell 14 per cent while the Hang Seng Index rose 26 per cent.

“The increasing number of corporate buy-backs could be a result of perceived undervaluing of shares due to negative sentiment created by Covid-19 and US-China decoupling,” said Clement Chan, managing director of accounting firm BDO.

Chan said he expects M&A and corporate share buy-back activity to remain strong for at least the next six months.

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