Source:
https://scmp.com/business/companies/article/3042626/technology-property-sectors-weigh-ma-china-second-year-row
Business/ Companies

Technology, property sectors weigh on M&A in China for a second year in a row, Dealogic says

  • Value of mergers and acquisitions falls 24 per cent so far this year to US$344.3 billion, according to data provider Dealogic
  • Deal making slumps by more than 50 per cent in China’s tech sector
Shandong Iron & Steel Group’s plant in Jinan, Shandong province. Deal making in the metal and steel industry has surged 111 per cent so far this year. Photo: Reuters

Mergers and acquisitions in China are set to shrink for a second year in 2019 on the back of a slump in deals in technology and real estate industries, according to data provider Dealogic.

The total value of M&A – inbound and domestic – stands at US$344.3 billion so far this year, 24 per cent lower than 2018, Dealogic said in a report on Wednesday.

The technology sector saw M&A values sink 51 per cent as “the contraction was a result of a lack of large deals and funding rounds in the technology sector, along with a sharp drop of volume in the real estate sector”, according to the report.

Still, there were bright spots, with deal making in the energy and commodities sectors bucking the decline. Such deals in the energy sector jumped 70 per cent from a year earlier, while those in the metal and steel industry surged 111 per cent.

Government efforts may be behind the spurt in M&A in these industries, as Beijing continues to push ahead with the so-called supply-side reform of weeding out excess capacity in sectors such as metals and building materials through industry consolidation.

China unveiled a plan last month that requires the nation’s top 10 steelmakers to have 60 per cent of the output by 2020 in a bid to improve efficiency. The 10 biggest steel mills produced 340 million tonnes of the alloy, making up 37 per cent of the capacity in the Asian nation. China eliminated about 150 million tonnes of steel output over the past two years.

The government has been leading the consolidation in the steel industry over the past few years. In 2016, it created China Baowu Steel Group, the world’s second-largest steel maker, by combining Baosteel Group and Wuhan Iron and Steel. The merged behemoth bought a 51 per cent controlling stake in Anhui province based Magang Group Holding in September, further cementing its lead in the industry.

Easing policies may bode well for a pickup in M&A deal next year, particularly in the technology industry.

The Chines securities regulator lifted a ban on back-door listings on the ChiNext board in October, allowing companies in strategic fledging industries to trade on the board through reverse mergers for the first time. It also softened the rule on refinancing, making it easier for listed companies to raise funds from the stock market to support M&A.

Amid the heightened surveillance, fundraising by restructuring deals, including back-door listing and M&A, slumped to 71 billion yuan (US$10.1 billion) among mainland-listed companies this year, from 833 billion yuan in 2018, according to China International Capital Corp.