China's open borders and push to stoke economy may revive dealmaking, advisers say

Essential Metals

26/01/2023 06:20

By Scott Murdoch, Yantoultra Ngui and Roxanne Liu
       SYDNEY/SINGAPORE, Jan 26 (Reuters) - China's reopened
borders and renewed focus on boosting the sagging economy have
brightened the deals outlook, with bankers starting to field
interest for mergers, acquisitions and fundraising involving the
world's second-largest economy.
    The prospect of a revival in deals comes as Chinese
policymakers try to restore private-sector confidence and
growth, which has been ravaged by the COVID-19 pandemic and a
sweeping regulatory crackdown.
    Although consumer, retail and travel-related firms are
expected to bounce back after an almost three-year lockdown,
advisers say sectors linked to strengthening China's economic
prospects will be at the centre of dealmaking this year.
    "We see strategic sectors, hardcore industrial technology,
automation, semiconductor-related to be a focus for outbound
activity," said Mark Webster, partner and head of Singapore at
BDA Partners, an Asia-focused investment banking adviser.
    "Healthcare opportunities are proving of interest, both
domestically and outbound, including in Southeast Asia," he
added. "Geographically, Indonesia in particular is attracting a
lot of attention."
    Australia has also already emerged on China's radar amid
hopes of a diplomatic thaw between the two countries. In one
such deal, Tianqi Lithium  002466.SZ  and IGO's  IGO.AX  joint
venture are bidding for lithium miner Essential Metals.
    Outbound M&A involving companies in China halved last year
to the lowest point since 2006, Refinitiv data showed, which
pulled total Chinese company-led dealmaking to its lowest point
in nine years. 
    Chinese companies' capital markets deals slipped 44% in the
same period, according to Refinitiv data. That slump crimped the
fees earned by Wall Street banks and forced some of them to cut
jobs, mainly those linked to Chinese deals, in the past few
months.
    "We have had a lot more requests for proposals from
companies in the past two to three weeks," said Li He, a capital
markets partner at law firm Davis Polk who travelled to Beijing
to meet clients the day after China's border reopened on Jan. 8.
    "That is not just because of travel but people think that a
reopening is good for the economy, good for capital markets and
good for deal execution," He said.
    The reopening coincided with a thaw in regulatory scrutiny
that had seen overseas Chinese IPOs grind to a halt in the past
18 months amid proposed rule changes, and the tech sector
struggle with a range of new regulations.
    Until the border reopened, travel from Hong Kong into
mainland China had been tightly restricted for about three years
- a sharp change for advisers for whom weekly trips to China had
been common. 
    Opened borders could lead to a pick up in deals involving
private equity funds later in 2023 as firms head to China to
find buyers for their assets, according to Bagrin Angelov, head
of China cross-border M&A at Chinese investment bank CICC.
    Chinese private equity activity was worth $24.1 billion in
2022, down from $57.8 billion a year before, Pitchbook data
showed.
    "Six months or one year before the deal, private equity
firms would already start meeting potential buyers to try to
warm up the interest and try to understand who could be
interested," Beijing-based Angelov said.
    "For them certainty is very important, and they really need
to meet buyers very early on," he continued. "Because of opening
up, we expect an uptick in overseas disposal of private equity
to Chinese buyers."
 (Reporting by Scott Murdoch in Sydney, Yantoultra Ngui in
Singalore and Roxanne Liu in Beijing. Editing by Gerry Doyle)
 ((Scott.Murdoch@thomsonreuters.com;))