China’s Appetite for Southeast Asian Logistics Assets Grows, PwC Says

Chinese investors are showing greater interest in logistics and port assets in Southeast Asia as the government steps up efforts to discipline companies’ foreign buying, according to analysts at the PricewaterhouseCoopers (PwC) consulting firm.

Chinese companies are expected to launch more major investment deals next year targeting port operations, logistics and transportation companies in Malaysia, Singapore, Indonesia and other Southeast Asian countries, said Waikay Eik, the South China and Hong Kong markets leader of the PwC Deals Advisory practice. Such transactions would be consistent with President Xi Jinping’s ambitious Belt and Road infrastructure investment initiative.

David Brown, transaction services leader for PwC China and Hong Kong, said China’s outbound investment in Southeast Asia have been climbing, encouraged by Belt and Road, a grand plan to link China with the rest of Asia and Europe through multibillion-dollar infrastructure projects. Brown said policies related to the initiative will become a major driving force behind Chinese companies’ overseas acquisition activities.

In late July, China’s state-owned China Merchant Port Holdings agreed to pay $9.74 billion for an 85% stake in Hambantota International Port Group, the operator of Sri Lanka’s Hambantota Port. The agreement grants China Merchant Port the rights to operate the Hambantota Port for 99 years.

Beijing’s tightening scrutiny of outbound investments and capital outflow since last year has fueled concerns that China is closing off overseas mergers and acquisitions. Last week, China’s cabinet issued new guidelines clearly outlining restrictions on foreign deals and signaling authorities’ efforts to put corporations’ overseas spending on a more disciplined track.

Foreign investments in real estate, hotels, film, entertainment and sports clubs will be subject to restrictions, while deals for projects related to the Belt and Road initiative will be encouraged, according to the guidelines.

Amid tightening curbs, the value of China-led mergers and acquisitions fell by more than half to $64.4 billion in the first half of 2017 from $130.9 billion in the first six months of 2016, according to a PwC report released Thursday.

But the number of outbound acquisition deals increased to 482 during the first half from 473 a year earlier, PwC reported. Meanwhile, Chinese companies completed 133 merger deals in Asia, a 40% increase from the comparable period last year.

Looking forward, the consulting firm said it expects a significant drop in the value of outbound transactions this year from 2016, which totaled $170 billion including ChemChina’s record-breaking $43 billion acquisition of Syngenta. But PwC forecast that China’s outbound investments would pick up and continue growing in 2018.

Brown said he expected the value of Chinese companies’ overseas acquisitions to double in the medium to long term as they still have growing demand for overseas assets to support further growth.

Contact reporter Han Wei (weihan@caixin.com)