China Sees Huge Drop in First-Quarter Overseas M&As
Yicai Global
/SOURCE : Yicai
China Sees Huge Drop in First-Quarter Overseas M&As

(Yicai Global) April 28 -- China's first-quarter overseas mergers and acquisitions fell dramatically from a year earlier, according to figures released by a number of reputable data providers. This year may not see a continuing boom in Chinese outbound M&As.

Compared with transactions totaling USD84.2 billion in the first quarter of last year, the first three months through March this year saw the figure slump by over two-thirds to just USD25.5 billion, according to a report by Mergermarket. There were just 89 deals compared with 114 in the same period last year.

The steep falloff comes after "major state-owned enterprises and listed businesses were busy integrating assets internally obtained by the last round of overseas M&As, pausing on new deals in a short term," a report in the 21st Century Business Herald quoted Wang Yiqing, a financial researcher of Mergermarket in China, as saying.

To further rationalize Chinese firms' M&A strategies the country's regulatory authorities probably strengthened reviews, Mergermarket's report said.

Compared with the mainland, as an offshore financial center, Hong Kong is feeling less impact from measures to curb capital flight implemented by regulators, with Hong Kong companies still active in overseas deals. Hong Kong's outbound M&A indicators have all hit new highs since 2001, Mergermarket noted. 

In the first quarter, Hong Kong funded 23 M&As with non-China-funded firms, reaching USD15.5 billion, at least USD5 billion more than the value of deals in the previous first quarters.

Chinese regulators have further strengthened their requirements on China-funded purchasers, namely that the debt ratio should be at a healthier level (lower than 70 percent), and the return on equity should be higher (higher than 5 percent). Reviews are also stricter.

In terms of the type of transactions, overseas M&A deals worth less than USD5 billion are more likely to be approved, and whether the potential deal is complementary to the core business of Chinese buyers needs to be specified. In this way, Chinese companies' overseas M&As have become more rational.

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Keywords: M&A