Saturday, November 14, 2015

China goes West shopping for assets as Xi transforms economy

Chinese companies are going on their biggest global spending spree ever, with a marked change in strategy from buying resources to hunting for manufacturing expertise and financial companies as economic growth slows.

With China National Chemical Corp.’s 41.7 billion franc ($41.6 billion) bid for Syngenta AG, the nation’s companies and tycoons have proposed $128.3 billion of acquisitions outside the country this year, up 185 percent from the same period in 2014, according to data compiled by Bloomberg. ChemChina is in talks to buy the Swiss pesticide maker, according to people familiar with the matter, in what would be the biggest ever acquisition by a Chinese company.

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The largest companies in China are snapping up assets in Europe and the U.S. as President Xi Jinping seeks to restructure an economy that is growing at its slowest pace since 1990. Out are purchases of commodity assets as the nation’s consumption of raw materials slipped, while in vogue are assets that infuse its companies with know-how and new technology.

“China is transforming into a consumer-driven economy,” Stephen Gore, head of Asia Pacific mergers and acquisitions at Bank of America Merrill Lynch, said by phone. “Many Chinese companies are eager to move up the value chain and that encourages them to pursue acquisitions of companies that could enable them to access advanced technology, strong brands and industrial processes.”

Luggage Handling

State-owned Tsinghua Unisplendour Co. in September said it would invest $3.8 billion in Western Digital Corp., China’s biggest technology share purchase in the U.S., while HNA Group Co. in July agreed to buy airport luggage handler Swissport International Ltd. for 2.73 billion francs. China Minsheng Investment Corp. in July agreed to spend $2.2 billion buying Sirius International Insurance Group Ltd.

The nation’s tycoons also have been opening their wallets. Fosun International Ltd., which is backed by Chinese billionaire Guo Guangchang, in May announced a deal to buy Bermuda-based insurer Ironshore Inc. for $1.84 billion, and in July made a hostile $545.5 million offer for BHF Kleinwort Benson Group SA. Meanwhile, Wang Jianlin, the nation’s wealthiest man according to the Bloomberg Billionaires Index, agreed in August to spend $650 million to buy World Triathlon Corp., adding the organizer of Iron Man triathlons to holdings including soccer team Atletico Madrid.
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‘Collaborative Efforts’

“Long-term growth potential in China makes firms attractive bidders, and they tend to have good funding support," said Spencer Lake, global head of capital financing at HSBC Holdings Plc. “Chinese firms looking abroad have also benefited from collaborative efforts between policymakers in China and Europe.”

The strategy is a marked change from the last decade when Chinese companies were investing in mines and oil fields in Canada, Africa and Australia as the nation sought raw materials to fuel rising demand from its factories, steel mills and power plants. The largest purchase to date by a Chinese company outside the nation’s borders was Cnooc Ltd.’s acquisition of Canadian energy producer Nexen Inc. for about $15.1 billion in 2013.

Political Opposition

With a housing glut, slowing car sales and concerns about rising bad loans, the pressure on Chinese companies to expand overseas has grown as profit margins shrunk. China’s economy grew6.9 percent in the third quarter , the slowest quarterly increase since the start of 2009. For the full year, growth is set to be the slowest since 1990.Concern about a slowdown in Chinese growth erased $9.7 trillion of equity market values worldwide in in less than two months in August and September.
The flurry of deals comes a decade after one of the most ambitious acquisitions proposed by a Chinese company fell apart amid political opposition in the U.S. Cnooc dropped an $18.5 billion bid for California-based Unocal Corp. in 2005 because of opposition from U.S. lawmakers on grounds the takeover would threaten national security.

Another deal may fail this year for the same reasons: Royal Philips NV’s planned $2.8 billion sale of a lighting business to Chinese-led investors has come under scrutiny by a U.S. government committee charged with vetting foreign acquisitions to protect national security, the company said Oct. 26.


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