After a record-breaking first quarter for Chinese outbound mergers and acquisitions focused on the US and Europe, more mainland-based companies are poised to follow Alibaba in targeting assets in fast-growing regions closer to home.
The Chinese ecommerce and internet group last week agreed to take a $1bn controlling stake in Singapore-based online shopping start-up Lazada, marking Alibaba’s biggest cross-border deal.
According to a survey by Herbert Smith Freehills, a law firm, acquisitive Chinese corporations are poised to follow Alibaba’s lead and have marked the region as a focus for investment.
Some 47% of the large Chinese corporations surveyed identified Southeast Asia as their top investment destination over the next three years, followed by Latin America with 17%.
Only 8% of respondents chose the US was as their top investment destination.
Malaysia was flagged as the principal destination for Chinese deals, particularly in the energy sector, followed by Singapore and Indonesia.
“It does represent quite a shift from what we have seen in the past,” said the firm’s Singapore-based M&A partner Nicola Yeomans, noting the recent flurry of China deals into the US. “It’s a matter of wanting to consolidate in their backyard . . . And now [Chinese companies] have the resources to do that.”
Globally, Southeast Asia was a top target for investment with 60% of corporations marking the region as a first choice, according to the Herbert Smith Freehills report, which surveyed 700 senior executives from global companies with more than $1bn in annual revenues.
As growth slows in emerging markets, several of Southeast Asia’s economies are expected to remain strong. Indonesia and the Philippines were among just a few emerging economies expected to deliver strong growth in 2016, according to Nomura.
China became the driving force for M&A in the Asia-Pacific last year. Companies from the mainland struck about $50bn in regional deals in 2015, more than doubling the figure from the year before and comprising 40 per cent of the regional total, according to Dealogic.
The value of outbound Chinese deals hit $101bn in the first quarter of the year, nearly eclipsing the previous annual record of $109bn recorded over the whole of 2015. Chinese buyouts have focused on developed markets such as the US and Europe in sectors such as materials, technology and hospitality.
Among these first quarter deals was ChemChina’s $43.8bn all-cash purchase of Swiss agribusiness Syngenta, the largest ever Chinese takeover of a foreign company.
Southeast Asia, particularly Malaysia, has already seen a windfall in Chinese investment over the past year.
In the biggest Chinese buyout in that region last year, China General Nuclear Power Corp, or CGN, in November agreed to pay $2.3bn in cash for the energy business of the troubled state fund 1Malaysia Development.
Official Chinese state media reported this week that CGN planned to set up its regional headquarters in Malaysia as a springboard into Southeast Asia.
(Source: South China Morning Post)