China to miss boom in Asia buyout deals despite likely easing of crackdown

HKBN

14/06/2022 07:42

By Scott Murdoch and Kane Wu
    HONG KONG, June 14 (Reuters) - Buyout funds are set to
extend a record spending spree in Asia to the rest of the year
but they will be mostly seeking deals outside China, where
concerns about the economy are likely to outweigh any easing of
a regulatory crackdown, dealmakers said.
    Private equity mergers and acquisitions (M&A) activity in
Asia, not including Japan, posted a record start to the year
with $167.4 billion spent since January 1 in markets such as
Australia, according to data from Dealogic.
    Buyouts in China, Asia's biggest market for deals, however,
slowed sharply in 2022, as the two-month Shanghai lockdown and
other coronavirus-related restrictions in many parts of the
country hurt the economy and brought potential transactions to a
grinding halt.
    Acquisitions backed by financial sponsors of Chinese assets
totalled just $1.5 billion this year, less than a tenth of the
value in the same period last year, Dealogic data showed. 
    A sluggish deals market in China could impact private equity
funds' investment returns and prompt them to double down on M&A
elsewhere, dealmakers said. Funds in the region are already
sitting on a record $642 billion worth of unspent cash, or 'dry
powder', according to data provider Preqin. 
    "Significant macroeconomic, geopolitical and
pandemic-related headwinds still remain as far as China is
concerned, which may continue to dampen sentiment for pursuing
China investments at least in the immediate future," said Steven
Tran, a partner at law firm Mayer Brown.
    The record buyout deal value, however, suggested that some
APAC-focused funds may be reallocating more of their dry powder
away from China and redirecting their investment activities to
other parts of the region, he said.
     
    
    Despite signs that Chinese regulators could be easing curbs
imposed on business sectors including technology, dealmakers
don't expect to see any immediate investment surge in the
country.
    China's central leadership has given Ant Group a tentative
green light to revive its IPO, Reuters reported last week.
 urn:newsml:reuters.com:*:nL1N2XX00L 
    "I don't think they (policy changes) will result in a major
rebound of private equity investment, as most investments
previously were speculative rather than value investments," said
Richard Ji, chief investment officer of All-Stars Investment.
    "However, right now China's quality assets are greatly
undervalued. A U-turn in regulation will reduce uncertainty and
discounts in assets, which is conducive to value investments,"
said Ji, who is also the managing partner of the firm which
focuses on tech and consumer sectors.

    M&A PREFERRED OVER IPO
    Though China has been quiet on the deals front, new private
equity capital raising in Asia has hit $30.4 billion so far this
year, according to Preqin.
    Big deals this year include an unsolicited near-$15 billion
bid by a group led by KKR & Co  KKR.N  for Australia's Ramsay
Health Care Ltd  RHC.AX  in April - this year's biggest
PE-backed takeover in Asia.
    A number of funds are also looking to bid for Hong Kong
telecoms provider HKBN Ltd  1310.HK  as its private equity
investors TPG and MBK seek to exit, said three people familiar
with the situation, who declined to be identified as the
information is not public.
    HKBN, TPG and MBK declined to comment.
    Market jitters have also led some PE firms to seek buyers
for their portfolio companies that were originally aiming for an
IPO, said Samson Lo, Co-head of Asia Pacific M&A at UBS.
    "Private equity firms are still enjoying a lot of capital
and any deal in any sector these days would attract more than 10
private equity bidders in the first round."

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Asia-Pacific ex-Japan financial sponsor involved M&A deals
Asia-Pacific ex-Japan financial sponsor involved M&A deals    https://tmsnrt.rs/3tPUmEE
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 (Reporting by Scott Murdoch and Kane Wu in Hong Kong; Editing
by Sumeet Chatterjee and Muralikumar Anantharaman)
 ((Scott.Murdoch@thomsonreuters.com;))