Wires

Australian dealmaking fees dive to 3-yr low but recovery seen on record low rates

Scott Murdoch

rates@

* Australia M&A deals down 20.2% to $85 bln in first nine months

* Country's investment banks earn $1.5 bln dealmaking fees in 9 mths

* Australia third-biggest investment banking fee generator in APAC

* Asia Pacific M&A deals dropped 30% to $751 bln in nine months

SYDNEY, Sept 30 (Reuters) - Australia investment banking fees slumped 24% to three-year lows as global economic uncertainties drove M&A volumes down by a fifth so far in 2019, but bankers said record low interest rates and chances of more rate cuts have revived dealmaking prospects.

Increased dealmaking activity in Australia will be welcome news for global banks as the country is the Asia-Pacific region's third-biggest investment banking fee generator after China and Japan.

Banks are increasingly hunting for deals in Asian markets to cushion a sharp slowdown in Chinese M&A caused by a regulatory crackdown on debt-fuelled overseas acquisitions and trade tensions with the United States.

Australia saw 1,411 announced M&A transactions worth about $85 billion in the first three quarters of the year, down 20.2% from $106.3 billion in the same period last year, according to data from Refinitiv.

Investment banks in the country earned $1.5 billion in dealmaking fees in the first nine months, the lowest in three years since the same period in 2016, the data showed.

Overall in Asia Pacific, the value of deals involving companies posted a drop of 30% to $751 billion.

The Reserve Bank of Australia reduced interest rates in June and July to a record low of 1% and last week its governor said further cuts may be needed to boost the economy, which in the last quarter saw its weakest growth in a decade.

The central bank's board is meeting on Tuesday where policymakers are expected to lower interest rates again to a record low of 0.75%, a Reuters poll showed last week.

Some local companies are likely to tap cheap financing due to the low interest rates to do acquisitions and more transactions could get announced in the fourth quarter of the year, said Sydney-based investment bankers.

"While the international macroeconomic volatility has certainly damped spirits ... we are still seeing heightened activity around larger corporates simplifying their portfolios," said Aidan Allen, UBS Australia co-head of investment banking.

China Mengniu Dairy Co's A$1.4 billion ($945.84 million) bid to buy infant formula maker Bellamy's Australia Ltd is likely to be finalised in the fourth quarter after a bid for the company was made on September 16.

Australia ranked ahead of China in cross-border M&A either as a target or an acquirer nation in the first nine months in deal value terms globally, the Refinitiv data showed.

Acquisitions led by Japanese companies, including brewing company Asahi's announced takeover of Anheuser-Busch InBev's Australian operations for $11 billion, accounted for two of the largest transactions so far this year in Australia.

Equity capital market activity in the country was dominated by secondary offerings, accounting for nine of the top ten deals this year, but overall volume was down 37% with $13.4 billion raised in the first three quarters, as per Refinitiv data.

Law firm Ashurst partner Sarah Dulhunty said the U.S.-China trade war and Brexit were creating major volatility which had hurt sentiment in equity capital markets.

"With the Australian federal election out of the way, we have seen an uptick in the number of IPO prospects in the pipeline but as always the dampener for ECM activity is market uncertainty," Dulhunty said. ($1 = 1.4802 Australian dollars) (Reporting by Scott Murdoch; Editing by Sumeet Chatterjee and Muralikumar Anantharaman)