Chinese overseas buying increasingly shifts from state to private

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#1
Chinese overseas buying increasingly shifts from state to private
DOW JONES SEPTEMBER 22, 2014 10:45AM

China has been Asia's top buyer of overseas assets for years, but inside the country, the pendulum of buyers is shifting. Instead of state firms armed with billions of dollars pursuing assets from oil to mining, China's buyers are increasingly companies led by home-grown entrepreneurs on the lookout for Western brands and technology.

One-off acquisitions by China's big state companies remain bigger, but in the last three years, privately owned firms like computer maker Lenovo Group and Chinese conglomerate Fosun International have contributed to the ever-larger volumes of buying abroad. Even Alibaba Group, the Chinese ecommerce giant that just raised US$21.8 billion in a New York initial public offering, has built up stakes in overseas assets, including U.S. mobile messaging service TangoMe this year.

"The theme of outbound China M&A has changed. State-owned enterprises are no longer the only buyers going overseas, private companies in industries like consumer and technology have started doing high-profile acquisitions on the global stage in recent years," said Stephen Gore, Asian-Pacific head of mergers and acquisitions at Bank of America Merrill Lynch.

At no time in the past has the gap between private and state buying of overseas assets been so small: This year alone, 188 overseas purchases worth US$21 billion have been undertaken by non-state-owned Chinese firms, just US$2 billion less than their bigger government counterparts, according to Dealogic data. Four years ago, state purchases, such as the US$7.1 billion acquisition of Repsol Brasil SA by China Petrochemical Corp., contributed to a US$24 billion gap.

By last year, overseas buying by private companies had reached a record high of US$23 billion, almost three times the level in 2010. As single deals, state acquisitions remain bigger, but private firms have been busier. This year's top Chinese outbound deal was the US$7 billion acquisition of Peruvian copper mine Las Bambas, followed by Lenovo's US$2.9 billion bid for Google's Motorola business and its US$2.3 billion offer for International Business Machines Corp.'s low-end server operation. Those transactions are expected to close by the end of the year.

Bankers point to three reasons behind the rising comparative heft of private companies: falling resource prices, the small size of their deals, and even Beijing's anti-corruption drive, which has put the focus on overspending by state firms.


"Large SOEs securing natural resources overseas have accounted for a major part of China's outbound acquisitions, but that's been slowing down because of the commodity backdrop and weak prices," said Lian Lian, North Asia co-head of M&A at J.P. Morgan Chase & Co. For instance, oil prices have fallen 9 per cent since the US$15.1 billion acquisition by Cnooc of Canadian oil explorer Nexen, still the biggest Chinese acquisition overseas.

"Another reason for the slowdown of state buying is that there's been tighter scrutiny of acquisitions under this new [leadership regime] and people have become more cautious," Ms. Lian said.

Bankers say the many foreign purchases by private firms are often also too small to attract regulatory scrutiny. Under new rules, only overseas purchases worth over US$1 billion need a full review by the National Development and Reform Commission, China's top economic planner, though acquisitions in "sensitive" industries like news media and telecommunications will still have to be vetted.

Brett McGonegal, chief executive of Hong Kong-based boutique bank Reorient Group, said he expects Chinese private companies to continue their overseas purchases, with the West as their main target.

"The U.S. market has a big pool of available assets for sale, and Europe has a lot of distressed assets, which are attractive from a price perspective," Mr. McGonegal said.

Earlier this year, Reorient advised House of Fraser, a U.K. operator of luxury departments stores, on its £480 million (US$786 million) sale to Chinese conglomerate Sanpower Group. The deal was the largest investment by a Chinese company in the retail sector overseas. The 165-year-old British department-store chain posted a loss before tax and exceptional items of £6.9 million for the year to January 26, 2013, its last publicly disclosed financial statements.
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#2
Chinese is exerting their influences this time by slowing at home to buy strategic assets on the cheap... very clever - head and tail they all win...

Growth in Chinese private investment
THE AUSTRALIAN SEPTEMBER 23, 2014 12:00AM

Matt Chambers

Resources Reporter
Melbourne
Miner Col Radley (42) back at work at Northparkes Mine in Parkes, NSW. Radley, along with 340 employees of the Northparkes M...
Rio TInto’s Northparks copper mine in NSW. Source: News Limited
CHINESE private investment in Australian resources is expected to continue growing as private enterprises increasingly link with state-owned enterprises looking for nimble partners, and debt financing becomes easier to get.

Scott Gardiner, managing partner at King & Wood Mallesons, told the International Mining and Resources Conference in Melbourne yesterday that while deals were small in number and size, they were increasing.

“The trend is clearly heading in a positive direction, so I would expect we will see more private transactions in Australia,” Mr Gardiner said

“I also think we will see a greater interaction between the (Chinese) private sector and state-owned enterprises,” he said.

“There is a nimbleness that private investors can bring to Australia that to date the state-owned enterprises haven’t had.”

Illustrating the nimbleness of the private enterprises, he pointed out that all hostile Chinese bids for listed companies here had been made by private companies.

Mr Gardiner said the 2013 deal where private Chinese company Chengdu Tianqi Industry teamed up with China Investment Corp to buy Talison Lithium (owner of the Greenbushes mine in Western Australia) for $646 million was an example of the state-private partnerships that could become more common.

Private Chinese firms have been more aggressive in Australian resources sector in the past couple of years, while state-owned companies that bought up big after the global financial crisis have stepped back as investments such as Citic Pacific’s beleaguered Sino Iron project have struggled.

Private deals, such as China Molybdenyum’s $900m purchase of Rio Tinto’s NorthParkes copper mine in NSW, have not been large, possibly due to recent changes to the approvals process that make it easier for deals of less than $US1 billion to get approval from the National Development and Reform Commission.

Paul Glasson, chairman of Shanghai-based Sartori Investments, said capital options for ­private entities were growing.

“Up until last year it was nearly impossible for a privately-owned enterprise to get debt funding (from an SOE) for an overseas project, but that is changing,” Mr Glasson said.

But it was not all smooth sailing for small firms, a Chinese private equity investor told the conference. Biao Chen, managing partner at Jinjiang Mining Fund, said Chinese banks were much keener to lend to state-owned enterprises because of the security they provided, regardless of the quality of the minerals project being funded.

“The Chinese banking system is not purely market-based, it is probably half market-based,” Mr Chen said.

“Fortunately, the current government realises this problem and is trying to change it.”
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#3
For the past decade China has been trying to buy resources, overseas company and hard assets rather than paper treasury. Most foreign governments know that, not sure if private enterprises understand that
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

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