Overseas assets expected to get cheaper amid global crisis
Kandy Wong and Martin Zhou in Beijing 23 February 2009
Even as the mainland’s state-backed commodity companies have been on an overseas acquisition spree, manufacturing firms have been advised by the central government to slow down foreign mergers and acquisitions, as it believes global asset prices will continue to slide and better terms can be had for offshore acquisitions by waiting.
China Minmetals Corp and Aluminum Corp of China are awaiting approval from the Australian government for a combined investment of US$21.2 billion in debt-laden OZ Minerals and Rio Tinto Group, while iron ore exporter Fortescue Metals Group is reported to have held investment talks with China Investment Corp and Hunan Valin Iron and Steel Group.
These acquisitions have sparked hopes that mainland companies would buy more overseas industrial and commodity assets.
Many investment banks are actively pitching acquisition opportunities in China as the country has the financial strength to bid for assets of cash-starved global corporations struggling to finance their operations and reduce debt amid the financial crisis.
“The State-owned Assets Supervision and Administration Commission hopes the manufacturing sector, excluding the commodity industry, will adopt a wait-and-see attitude to purchasing global assets,” a source close to the commission quoted its chief, Li Rongrong, as saying in a recent internal meeting.
“Investment banks would like to target the vehicle, resources, and banking industries. But the central government will not approve the completion of overseas acquisitions by local carmakers and banks for some time,” said a source.
“Beijing may issue approval only if the buyers can provide convincing reasons, such as the strategic importance of securing the deals,” the source added.
Unlike the vehicle and finance sectors, mainland commodity companies have won approval to proceed with aggressive offshore expansion plans as prices in the resources sectors plunged.
“Relatively speaking it’s easier for commodity companies to justify their acquisitions from a strategic point of view,” the source said.
In contrast, China’s largest carmaker, SAIC Motor Corp, has suffered considerable losses on a US$500 million controlling investment made in South Korean sports-utility vehicle subsidiary Ssangyong Motor, which secured bankruptcy protection last month only after winning government support to turn the company around.
Shanghai-based SAIC took the lead in 2004 in acquiring global vehicle assets as Beijing encouraged big corporations to “reach out” and learn technological skills from international carmakers.
“But now the government worries about buying into worthless or depreciating assets,” the source said.
In addition to SAIC’s offshore investment problems, China Investment Corp’s US$5 billion stake in Morgan Stanley and a US$3 billion stake in Blackstone Group have shrunk by more than 60 per cent since 2007. Ping An Insurance (Group) booked a loss of 15.7 billion yuan (HK$17.8 billion) last year on a 5 per cent stake it bought in Dutch-Belgian financial group Fortis for 23.9 billion yuan.
Numerous reports said earlier that some carmakers, such as Guangzhou Automotive Industry Corp, Hong Kong-listed Geely Automobile Holdings and Dongfeng Motor, as well as Shenzhen-listed Chongqing Changan Automobile, had held preliminary talks with Ford Motor of the United States on the acquisition of its Volvo passenger car unit for US$6 billion. However, the mainland carmakers denied any possible acquisitions by saying that the domestic market and internal business of the companies should top the list.
“The Chinese carmakers can’t complete global acquisition deals by themselves as they don’t have enough net cash,” the source said.
Sichuan Automobile, a maker of small cars, also denied it had met General Motors for talks about buying its Hummer sports-utility vehicle brand. “Obviously, car giants in the US have an imminent need to sell their assets to generate cash,” the source said.
State-backed firms told to slow buying sprees
ReplyDeleteOverseas assets expected to get cheaper amid global crisis
Kandy Wong and Martin Zhou in Beijing
23 February 2009
Even as the mainland’s state-backed commodity companies have been on an overseas acquisition spree, manufacturing firms have been advised by the central government to slow down foreign mergers and acquisitions, as it believes global asset prices will continue to slide and better terms can be had for offshore acquisitions by waiting.
China Minmetals Corp and Aluminum Corp of China are awaiting approval from the Australian government for a combined investment of US$21.2 billion in debt-laden OZ Minerals and Rio Tinto Group, while iron ore exporter Fortescue Metals Group is reported to have held investment talks with China Investment Corp and Hunan Valin Iron and Steel Group.
These acquisitions have sparked hopes that mainland companies would buy more overseas industrial and commodity assets.
Many investment banks are actively pitching acquisition opportunities in China as the country has the financial strength to bid for assets of cash-starved global corporations struggling to finance their operations and reduce debt amid the financial crisis.
“The State-owned Assets Supervision and Administration Commission hopes the manufacturing sector, excluding the commodity industry, will adopt a wait-and-see attitude to purchasing global assets,” a source close to the commission quoted its chief, Li Rongrong, as saying in a recent internal meeting.
“Investment banks would like to target the vehicle, resources, and banking industries. But the central government will not approve the completion of overseas acquisitions by local carmakers and banks for some time,” said a source.
“Beijing may issue approval only if the buyers can provide convincing reasons, such as the strategic importance of securing the deals,” the source added.
Unlike the vehicle and finance sectors, mainland commodity companies have won approval to proceed with aggressive offshore expansion plans as prices in the resources sectors plunged.
“Relatively speaking it’s easier for commodity companies to justify their acquisitions from a strategic point of view,” the source said.
In contrast, China’s largest carmaker, SAIC Motor Corp, has suffered considerable losses on a US$500 million controlling investment made in South Korean sports-utility vehicle subsidiary Ssangyong Motor, which secured bankruptcy protection last month only after winning government support to turn the company around.
Shanghai-based SAIC took the lead in 2004 in acquiring global vehicle assets as Beijing encouraged big corporations to “reach out” and learn technological skills from international carmakers.
“But now the government worries about buying into worthless or depreciating assets,” the source said.
In addition to SAIC’s offshore investment problems, China Investment Corp’s US$5 billion stake in Morgan Stanley and a US$3 billion stake in Blackstone Group have shrunk by more than 60 per cent since 2007. Ping An Insurance (Group) booked a loss of 15.7 billion yuan (HK$17.8 billion) last year on a 5 per cent stake it bought in Dutch-Belgian financial group Fortis for 23.9 billion yuan.
Numerous reports said earlier that some carmakers, such as Guangzhou Automotive Industry Corp, Hong Kong-listed Geely Automobile Holdings and Dongfeng Motor, as well as Shenzhen-listed Chongqing Changan Automobile, had held preliminary talks with Ford Motor of the United States on the acquisition of its Volvo passenger car unit for US$6 billion. However, the mainland carmakers denied any possible acquisitions by saying that the domestic market and internal business of the companies should top the list.
“The Chinese carmakers can’t complete global acquisition deals by themselves as they don’t have enough net cash,” the source said.
Sichuan Automobile, a maker of small cars, also denied it had met General Motors for talks about buying its Hummer sports-utility vehicle brand. “Obviously, car giants in the US have an imminent need to sell their assets to generate cash,” the source said.