Chinese Companies Pursuing Innovative Strategies in Foreign M&A Deals

飞雪寒冰

Chinese companies are pursuing strategies out of the mainstream in their foreign M&A deals, JPMorgan's Brian Gu said at a recently-concluded M&A conference sponsored by JPMorgan.

Gu, head of the bank's M&A division for Greater China, said Chinese companies are being innovative in their use of private equity, the accumulation of positions in distressed or heavily-indebted companies, and obtaining assets from bankruptcy court.

While these methods are "not mainstream", Chinese companies are managing to move faster, helped in part by rapid regulatory approval, he said, adding that strategies such as acquiring assets from distressed companies are highly risky, as the pecking order of creditors is not always obvious.

飞雪寒冰

Gu noted that Chinese companies were the acquirers in more than 10 percent of global M&A deals worth more US$500 million. Some of the most high profile deals include resource companies in Australia and Sichuan Tengzhong's purchase of the Hummer brand from bankrupt General Motors.

He said the collapse of the US$19.5 billion Chinalco-Rio Tinto tieup illustrates the possible vulnerability of some deals to changes in market condition, specifically the rise in commodity prices. Chinalco stepped in with an offer to provide capital to debt-ridden Rio Tinto early in 2009, but Rio Tinto's bargaining position eventually improved with a rise in iron ore prices. The Anglo-Australian miner eventually decided to tap funds from a US$15 billion rights issue.

In the matter of overseas acquisitions by Chinese companies, JPMorgan recently participated in the Sinotruk (Hong Kong) Ltd deal to sell an over 25 percent stake to Germany's MAN SE for 560 million euros. The two partners plan to develop a line of trucks targeted at emerging markets.