Caixin
Aug 26, 2020 04:03 AM
ECONOMY

Losses From China’s Overseas Takeover Binge Are Piling Up Fast

Signage for HNA Group Co. is displayed atop a building in Haikou
Signage for HNA Group Co. is displayed atop a building in Haikou

(Bloomberg) —Chinese buyers have stopped snapping up iconic foreign assets as the coronavirus pandemic ravages the targets of deals that defined a headier era.

Some prolific acquirers such as HNA Group Co. and Anbang Insurance Group Co. began falling into disarray before the recent crisis, and the impact on investments in sectors hit hardest by the outbreak means healthier owners are now feeling the pain.

Conglomerate Fosun International Ltd.’s 2015 investment in Cirque du Soleil Entertainment Group may soon be wiped out, while PizzaExpress, owned by private equity firm Hony Capital, said this month it’s likely to hand over control of the British chain to creditors.

Baggage handler Swissport International AG is negotiating with investors over a rescue in which HNA would exit the cash-strapped business it bought in 2015. HNA is also among Virgin Australia Holdings Ltd. shareholders set to lose everything after the airline collapsed in April.

“Some of the Chinese overseas investments that have recently imploded are legacy acquisitions from the debt-fueled deal spree in the years before 2018,” said Lars Aagaard, head of mergers and acquisitions and financial sponsors for Asia Pacific at Barclays Plc based in Hong Kong, in a phone interview.

Even Chinese companies’ pre-Covid-19 attempts to extricate themselves from investments are being tripped up by the pandemic.

Dajia Insurance Group, the heir to troubled insurer Anbang, found itself suddenly without a buyer for a $5.8 billion portfolio of U.S. luxury hotels when the virus struck. South Korea’s Mirae Asset Global Investments Co. did not consummate a deal arranged last fall by the April 17 deadline, prompting Dajia to sue. Mirae told the courts that hotel shutdowns caused by the Covid-19 pandemic are among the reasons it canceled the transaction.

Businesses in sectors such as transportation, tourism and hospitality are facing extreme challenges regardless of whether the owner is Chinese or someone else, Aagaard said.

At $15.1 billion, the volume of Chinese outbound M&A so far this year represents a 25% drop from a year earlier and a far cry from the peak in 2016, when China National Chemical Corp. agreed to buy Swiss agrichemical maker Syngenta AG for $43 billion, according to Bloomberg data.

Also weighing on deal-making is that India, Australia and the European Union have increased scrutiny of foreign investment in moves widely viewed as targeting Chinese buyers. Amid tensions between Washington and Beijing, the Trump administration imposed sanctions on officials in China and Hong Kong, adding uncertainty for Chinese companies operating abroad.

China Mengniu Dairy Co. scrapped plans Tuesday to buy Kirin Holdings Co.’s Australian beverage unit after being told the deal would most likely be blocked amid increasingly strained relations between Canberra and Beijing.

“The great uncertainties in the relationship between China and the U.S. have inevitably made Chinese investors more cautious with their cross-border deals,” said Eric Liu, Shanghai-based managing partner of Zhao Sheng Law Firm. “While we do not see any indication of Chinese investors stopping going abroad, it is completely understandable that they need time to assess.”

Earlier this month, China Three Gorges Corp. agreed to buy 13 Spanish solar park assets owned by X-Elio Energy SL, a renewable energy company co-owned by Brookfield Renewable Partners LP and private equity firm KKR & Co. The deal could become one of the few Chinese acquisitions in Europe this year.

Barclays’ Aagaard said he sees continued Chinese interest in future outbound deals, though focused more on transactions that complement buyers’ core businesses.

“The desire to do selective and strategic acquisitions overseas is still there, especially in sectors such as power, infrastructure and utilities, technology and consumer,” Aagaard said. “Chinese companies, both private and state-owned enterprises, are now taking a much more sophisticated approach both as buyers and also as owners of businesses.”

Contact editor Bob Simison (bobsimison@caixin.com)

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