China's Thirst for Mergers Barely Affected by Crisis

Chinese companies continued to snap up acquisitions abroad at a strong pace this year in spite of fears at the start of 2009 that the global economic crisis would force them to ease back on outbound mergers and acquisitions.

The companies were involved in an aggregate $46bn of outbound M&A deals in the year to date, nearly matching last year's record of $50bn, according to Dealogic, the data provider.

The figures suggest Chinese outbound activity has settled at a higher level than in previous years. Dealogic says that Chinese outbound M&A was $9.6bn in 2005 and $25.4bn in 2007.

The impact of the global economic downturn on M&A activity [in China] has been short-lived, said David Brown, a Hong Kong-based partner at PwC.

This year's activity was driven by a lengthy list of energy and resources deals, in countries including the US, UK and Australia. Top of the list was Sinopec's $8bn takeover of Geneva-based Addax Petroleum, a UK-listed oil producer.

Other notable deals included PetroChina's $2.4bn takeover of Singapore Petroleum and the $1.6bn minority stake in AES Corp in the US acquired by China Investment Corp, the sovereign wealth fund.

Chinese outbound investment is becoming increasingly sophisticated, said PwC, with CIC this year announcing two unusual minority investments valued at a combined $1.6bn.

As a result, CIC will establish a joint venture with GCL-Poly Energy Holdings, a Hong Kong-listed polysilicon supplier and power producer, and ally itself to Noble Group, a Singapore-listed commodities producer and trading house.

Regional dealmakers say that Chinese companies are studying a wide range of big overseas investment opportunities.

Wei Sun Christianson, chief executive of Morgan Stanley China, said that outbound deals would continue to be driven by the country's thirst for energy security. China also wants to diversify away from its exposure to US dollar assets, hence the expectation for deals in Europe, Canada and Australia, she said.

Inbound M&A fell sharply with $31.2bn of announced deals in the year to date, a 25 per cent fall on last year, said Dealogic.

The largest inbound deal involved BBVA, Spain's second-largest lender, which spent $1.5bn to increase its strategic stake in China Citic Bank by 5 percentage points to 15 per cent.

Ms Christianson said inbound deals had fallen as foreign companies looked to survive the global downturn and many mainland companies did not want capital or outside expertise.