By Denny Thomas and Julie Zhu
HONG KONG - Faced with mounting opposition from foreign governments and regulators, Chinese suitors looking for overseas acquisitions are teaming up with local partners and private equity firms to allay concerns that China is gobbling up key assets.
They are also turning to newer markets such as Malaysia and Central Asia for a warmer welcome.
Chinese companies have poured a record $142 billion into foreign deals this year, backed by a government mandate to increase state companies' global footprint and buy technology to upgrade the country's outdated manufacturing.
But a protectionist backlash has triggered greater scrutiny of such deals by governments uncomfortable that Chinese state-linked companies are extending their reach into their economies.
Some Chinese deals have been blocked, including State Grid Corp of China's [STGRD.UL] $7.7 billion bid for Australia's biggest electricity grid[nL3N1AS1KH], while others have been put on the back burner, such as Britain's 11th-hour decision to review the building of a new Chinese-backed nuclear plant in southwest England.[nL8N1AG073]
More broadly, Chinese buyers have been blamed for runaway real estate prices in Canada and Australia, and on Thursday a top European business lobby warned China that the protectionist backlash would get worse unless it opened its own markets faster to foreign investment.[nL3N1BC3CF]
"As challenges for Chinese buyers mount, they are scouting for new markets and looking for ways to make their bids more palatable to regulators and governments," said Mayooran Elalingam, head of Asia-Pacific M&A at Deutsche Bank.
Zhao Ju, executive vice president in charge of investment banking at China Merchants Bank <600036.SS>, said teaming up with local bidders, while creating jobs and contributing to local tax revenues, could help ease resistance.
"Capital alone cannot solve all problems while investing overseas. You need to have a smart tactic," he said.
In the latest example, developer Shanghai CRED is joining Australia's richest woman Gina Rinehart to bid for S.Kidman & Co, Australia's largest private landholder, after a Chinese-led consortium was turned down twice by the government for not being in the national interest. [nL3N1BA3B0]
Chinese conglomerate CITIC Group [CITIC.UL] is also seeking local partners when bidding for foreign assets, Chairman Chang Zhenming said last week after its earnings conference.
"We used to make most overseas investments on our own. Nowadays, we tend to work with local partners more," he said, as it helped smooth the process of winning the support of the government concerned.
CHINA'S TRUMP CARD
Some are trying other tactics to help overcome overseas opposition.
Fosun International Ltd <0656.HK>, one of China's most active overseas acquirers, said it was relying on local hires.
"This is much better than setting up Fosun's own team on the ground or dispatching a team there, as they know more about the local culture and investment risks," Fosun Chairman Guo Guangchang said on Thursday.
Some Chinese state-controlled companies are teaming up with Chinese private equity firms such as Hony Capital and CDH Group to dilute concerns about Beijing's involvement in decision makings. Bankers says more such tie-ups are likely.
A person involved in appliances maker Joyoung Co's <002242.SZ> bid for German coffee machine maker WMF told Reuters the company brought in CDH as a partner, though the Chinese consortium eventually lost to a Swedish firm.
Despite the chilly reception, Chinese buyers do not appear to be abandoning their overseas M&A plans. China Life Insurance Co Ltd <601628.SS> and Ping An Insurance Group <601318.SS> said this month they would step up such purchases, pouring billions of dollars mostly into property. A Ping An spokesman said it regularly works with local partners when investing overseas.
But the geographical focus for China's outbound M&A could be changing.
Deutsche Bank's Elalingam said he expected more acquisitions in countries such as India through Chinese President Xi Jinping's One Belt One Road initiative, a development strategy to increase connectivity and cooperation between China and the rest of Eurasia.
While some developed markets might have turned up their noses at Chinese money, Xi's initiative, announced in 2013, is opening doors in India, Pakistan, Malaysia and regions like the Balkans and Central Asia.
Chinese companies invested nearly $15 billion in associated countries last year, up a fifth from 2014.
The tough economic conditions many countries face is ultimately China's trump card, since they can ill afford to turn away capital, said Wang Zilong, head of M&A at China International Capital Corporation <3908.HK>.
"Such countries will have to balance between the economic reality and the concerns of local residents about the overwhelming presence of Chinese capital," Wang added.
(Reporting by Denny Thomas and Julie Zhu; Editing by Will Waterman)
Disclaimer: No Business Standard Journalist was involved in creation of this content
