Caixin
Oct 24, 2016 07:01 PM
M&A

China Everbright CEO Criticizes SOEs' M&A Strategy

(Beijing) — The head of a company that helps Chinese firms invest abroad has publicly questioned the wisdom of some mergers and acquisitions that state-owned enterprises (SOEs) have made in recent years, saying that many of them are merely vanity projects.

Chen Shuang, CEO of China Everbright Ltd., a Hong Kong subsidiary of financial conglomerate China Everbright Group, made the remarks last week at a corporate conference in Qingdao, and come as China's outbound investments involving M&As are surging.

Without mentioning any companies by name, Chen said some of the investments have been so poorly conceived and implemented that the SOEs making the acquisitions seemed to be just "messing around."

Chen's remarks came right after the Chinese Ministry of Commerce released data on September's outbound direct investments. The data showed that Chinese enterprises conducted 521 overseas M&A deals in the first nine months of this year with a combined value of $67.4 billion, compared with $54.4 billion for all of 2015.

The surge has been driven in part by unwise investments that some SOEs have made, Chen said.

Some of the deals were entirely vanity projects, he said. Companies already loaded with debt ventured into fields they barely understood, not because the investment was strategically important but because the executives thought they would lose face if their companies did not make any overseas acquisitions under their watch.

"This phenomenon has become very pronounced with M&As conducted over the past two years," he said.

Chen also said that some SOEs that are making acquisitions abroad were actually just trying to dodge regulatory limits on capital flows and move assets abroad. Some SOEs participated in the acquisition of overseas-listed Chinese enterprises, betting they could relist on a domestic stock exchange at a higher value.

Such actions violate the spirit of the central government's encouraging Chinese enterprises to "go out," according to Chen. Through foreign M&A deals, the government wants to help upgrade domestic technologies, he said. "And yet, there is a big question mark over how much M&A investments made in this sense account for the total."

He added: "Many cross-border M&As have served no use in facilitating the consolidation and upgrading of industries. Neither do the Chinese acquirers have professional teams for post-deal integration. These M&As are bound to fail, and it may just not be apparent now."

Everbright Ltd. provides services for cross-border investment and assets management.

Everbright Ltd. and IDG Capital Partners have jointly launched an M&A fund in June with at least 20 billion yuan ($3 billion) in committed capital available for investment. The fund focuses on helping mature and strong Chinese and foreign companies raise funds, conduct M&A deals and make other types of investments.

Contact reporter Wang Yuqian (yuqianwang@caixin.com); editor Ken Howe (kennethhowe@caixin.com)

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