Chinese firms buying overseas assets advised to pay more attention to Beijing’s forex controls

PUBLISHED : Thursday, 13 October, 2016, 7:27pm
UPDATED : Thursday, 13 October, 2016, 10:30pm

Chinese corporates fuelling an outbound buying spree need to be better prepared on foreign exchange controls as Beijing beefs up curbs on capital outflows to stop “fake” deals, participants told a forum in Shanghai on Thursday.

Companies could find it more difficult and time consuming to complete all procedures required by forex authorities to transfer capital abroad for outbound merger and acquisition deals even after they received approvals from regulators like the Ministry of Commerce and the National Development and Reform Commission, Eric Liu, a senior consultant of law firm Linklaters, told the China M&A Forum.

“If corporates are not fully prepared on the forex issue in advance, informing forex regulators at the earlier stage of deals, it could lead to a disastrous aftermath such as falling behind deal closing dates due to the inability to transfer money across the border in time,” he said.

Despite these issues, market participants said they still believe Beijing’s policy support on authentic outbound M&A remains intact.

“On the policy front we haven’t seen fundamental changes,” Liu said. “Short term capital outflow worries did cast a shadow and will curb those fake deals seeking to move capital out of China for forex reasons.”

Yang Lei, head of cross-border M&A for Huatai United Securities, told the forum that Beijing’s support for “good-quality deals” remains.

On the policy front we haven’t seen fundamental changes
Eric Liu, Linklaters

While hedging against currency risk amid the ongoing yuan depreciation is one factor behind the outbound M&As, the more important factor for businesses is “moving up the value chain and seeking synergy”, Lin Wei, a partner at KPMG said on the sidelines of the forum, which was co-hosted by Mergermarket and AVCJ.

Earlier this month Mergermarket said the momentum of outbound M&A deals in the fourth quarter could slow down due to forex controls, pointing out that some proposed deals failed due to tighter and more time consuming forex procedures.

Mergermarket data showed that mainland Chinese and Hong Kong outbound M&A deals in the first three quarters were valued at US$171.7 billion, up 163.4 per cent over the same period last year. That was in sharp contrast to the value of inbound deals that slumped 78.8 per cent year-on-year to US$6.6 billion.

In the first eight months of 2016, the mainland’s total outbound investment topped US$118.1 billion, up 53.5 per cent year on year, according to commerce ministry data. In the same period mainland companies invested in 5,929 companies in 158 countries and regions, the data showed.

Last year, mainland China became the world’s second largest outbound investor after the United States with an outbound investment of US$145.67 billion, the 13th straight year of growth.