Deals and IPOs

Overseas Chinese acquisitions worth $75 billion cancelled last year

Claire Jones, Javier Espinoza and Tom Hancock
An investor walks past an electronic screen showing stock information at a brokerage house in Nanjing, Jiangsu province, January 19, 2016.
China Daily | Reuters

Chinese overseas deals worth almost $75bn were cancelled last year as a regulatory clampdown and restrictions on foreign exchange caused 30 acquisitions with European and U.S. groups to fall through.

The figures, which reveal a sevenfold rise in the value of cancelled deals from about $10 billion in 2015, highlight a waning appetite for global dealmaking by the world's second-largest economy. But despite more deals being abandoned, the analysis by law firm Baker McKenzie and researcher Rhodium shows that Chinese direct investment into the U.S. and Europe still more than doubled to a record $94.2 billion in 2016.

Sellers of assets in Europe and the U.S. are becoming increasingly wary of large deals with Chinese buyers, according to people involved with several cross-border transactions involving China.

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"The Chinese are getting more professional but sellers are giving more priority to potential buyers outside China because of the restrictions imposed on capital," said one person who dealt with mainland buyers.

China notched up a record capital exodus last year, driven by expectations that the renminbi would continue to weaken against the dollar, and as slowing domestic growth diverted investment elsewhere.

Regulators were unnerved as Beijing burnt through dollars to stem currency depreciation, with reserves falling $320 billion last year. In an attempt to save reserves, the foreign exchange watchdog became one of the biggest hurdles for Chinese groups seeking to buy businesses overseas late last year.

China M&A mania to slow in 2017: Dealogic

Ten U.S. deals worth $58.5bn were scrapped. A Chinese consortium's $3 billion offer for a U.S.-based lighting unit of Philips, the Dutch group, was thwarted by the U.S. Committee on Foreign Investment. U.S. regulatory fears prompted Fairchild Semiconductor to turn down a $2.6 billion bid from state-backed groups China Resources and Hua Capital.

In Europe, 20 deals worth $16.3 billion were cancelled, including the proposed sale of German chip equipment maker Aixtron to Chinese investors for €670 million.

However, Chinese groups are still buying at a rapid pace, given that direct investment was just $2.6 billion a decade ago.

Thomas Gilles, China specialist at Baker McKenzie, said political and regulatory scrutiny in China had made the near-term outlook "more challenging" and made "political risk assessment and regulatory planning" increasingly important for dealmakers.

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