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China at top of US deals under security review in 2015, says CFIUS report

CFIUS report followed recent decision by President Trump to block US$1.3 billion sale of Lattice Semiconductor to Canyon Bridge

PUBLISHED : Thursday, 21 September, 2017, 8:44pm
UPDATED : Friday, 22 September, 2017, 1:54pm

Mainland Chinese companies have again set the pace for the most number of deals put under security review by the United States’ watchdog on foreign investments.

In its latest annual report to Congress published on Wednesday, the Committee on Foreign Investments in the United States (CFIUS) said Chinese deals made up 29 of the 143 transactions that it reviewed in 2015, the most recent year data was available.

The report followed last week’s decision by US President Donald Trump to block the US$1.3 billion acquisition of Lattice Semiconductor, a maker of programmable logic chips, by Canyon Bridge Capital Partners, which includes investment from China Venture Capital Fund Corp.

CFIUS is an inter-agency committee tasked to assess the national security implications of mergers, acquisitions and takeovers that could result in foreign control of any US business.

“For the fourth year in a row, Chinese transactions accounted for the most number of CFIUS reviews,” said Chris Griner, the co-managing partner at law firm Stroock & Stroock & Lavan’s office in the US capital of Washington.

Canada came in second, with 22. Britain followed with 19 and Japan with 12.

Griner said 2015 also accounted for the largest number of Chinese deals put under scrutiny by the US government.

There were 24 Chinese transactions reviewed by CFIUS in 2014, compared with 21 in 2013 and 23 in 2012.

CFIUS has put a total of 97 Chinese deals under review between 2012 to 2015, the most of any country during that period.

“Although no parties are identified by name, owing to confidentiality restraints, 66 reviews went to full investigation [in 2015], with CFIUS imposing formal mitigation in 11 cases,” Griner said.

“Overall, CFIUS continues to approve the vast majority of transactions it reviews, but deals can require restructuring or mitigation to pass muster.”

Griner said the recent veto of the Lattice Semiconductor deal demonstrated the authority of the US President to block transactions deemed a national security threat.

The CFIUS review described China Venture Capital Fund as a company controlled by Chinese state-owned entities that manages industrial investments and venture capital.

No CFIUS case went to the president’s office for decision in 2015, Griner said.

Following a CFIUS probe that year, Unisplendour Corp, a unit of state-backed Tsinghua Holdings, terminated in early 2016 its US$3.8 billion bid for a 15 per cent equity stake in Western Digital, the world’s largest supplier of data storage devices. That deal was announced in September 2015.

Research firm Rhodium Group said in a report last year that China's rise to the top of the committee's review rankings was due primarily to the growing number of mainland corporate acquisitions in the US.

Data from Rhodium showed that Chinese direct investments in the US reached US$15.7 billion in 2015, up from about US$12 billion in 2014. The 2015 deals comprised mergers and acquisitions worth about US$14 billion and US$1.8 billion in so-called greenfield projects.

"Compared to this exponential increase in the annual number of deals, the increase in CFIUS investigations is disproportionally small," Rhodium analysts Thilo Hanemann and Daniel Rosen said in their report last year. "Most importantly, a greater number of Chinese deals now target US technology assets, and the potential transfer of critical US technology is one of the key questions that [the committee] assesses."