China to Wall Street's Deal Makers: We Don't Need You
21 Febbraio 2016 - 11:59AM
Dow Jones News
By Rick Carew and Julie Steinberg
HONG KONG--China doesn't need Wall Street after all.
China Citic Bank Corp. and China International Capital Corp. are
snagging key mergers-and-acquisitions assignments from Chinese
companies, which are snapping up Western assets at the fastest clip
ever. The banks are supplanting the Wall Street firms that spent
more than a decade preparing for just such a surge.
In a year that has already produced $81.5 billion of foreign
acquisitions by Chinese companies--blowing away the pace in any
prior year--not a single big Wall Street bank is among the top
three buy-side advisers, according to Dealogic. Leading the charge
instead are HSBC Holdings PLC, China Citic Bank and CICC. HSBC and
China Citic mainly owe their position to roles advising China
National Chemical Corp. on its $43 billion agreement to buy Swiss
pesticide maker Syngenta AG.
Emblematic of the surge, it is the largest purchase ever by a
Chinese company and those banks are helping arrange a lending
package that, along with the advisory work, is likely to generate
tens of millions of dollars in fees.
The best showing by a big Wall Street bank comes from Bank of
America Merrill Lynch, which is tied for fifth.
Chinese firms have a growing set of advantages over their
Western counterparts. They tend to have better relationships with
Chinese regulators, which "save[s] a lot of time and effort" for
companies seeking approval for overseas investments, said Cliff
Sheng, head of greater China financial services at management
consultant Oliver Wyman in Beijing.
Deal makers say Chinese banks can better gauge shifting
political tides and connect more easily with less-sophisticated
local buyers. They benefit from deep local corporate ties as well
as an ability to tap vast reserves of cash for loans at a time when
many Western banks are retrenching.
Then there is the know-how when it comes to international
deal-making. Once the locked preserve of Western firms, it is no
longer proprietary.
"Chinese banks are learning from Western banks and changing the
competitive landscape," said Fang Jian, China national managing
partner at U.K.-based law firm Linklaters.
Another factor: Many of today's most aggressive Chinese
acquirers are relatively unknown to Wall Street banks.
A new breed of aggressive government offshoots like Tsinghua
Unigroup Ltd. and Shanghai Pudong Science and Technology Investment
Co. is pushing into semiconductor deal making, for example, which
has become a priority for Beijing. They are taking over from
companies that are well known by Wall Street bankers like
personal-computer maker Lenovo Group Ltd. and China Mobile Ltd.
Beijing-based CICC won a plum role advising HNA Group on its
agreement Wednesday to buy technology distributor Ingram Micro Inc.
for $6 billion. CICC was founded in 1995 as a joint-venture between
state bank China Construction Bank Corp. and Morgan Stanley.
Control of the investment bank was wrested from Morgan Stanley by
its Chinese managers in the early 2000s.
China Citic Bank is the banking arm of Citic Ltd., a state-owned
conglomerate created in the 1970s to establish trade links to the
outside world. It has grown into a sprawling empire with a big
brokerage arm, Citic Securities Co., and a range of interests from
property to mining.
Firms like CICC and China Citic have bigger, less-well-paid
local armies of bankers than their Wall Street counterparts. They
are generally willing to take lower fees--Chinese companies are
famously stingy on that score--and bet on unknown firms that might
have a lower success rate in closing M&A deals. Part of that is
borne of necessity as they don't have relationships that would
afford them the luxury of advising more deal-seasoned Western
companies.
Wall Street banks now often find themselves advising U.S. or
European targets of China's growing ambition. Morgan Stanley
advised Ingram Micro and Goldman Sachs Group Inc. advised General
Electric Co. on the January agreement to sell its appliance unit to
Chinese manufacturer Haier Group.
Global investment banks say Chinese companies still need their
help navigating Western markets and expertise and connections with
global targets, which Chinese banks lack given their limited
presence outside the country. Chinese advisers rarely encounter
Western antitrust or national security reviews, for example.
And Chinese firms' proposed acquisitions are coming under
intense scrutiny in Washington. This past week, House Republicans
asked the Committee on Foreign Investment in the U.S., or
CFIUS--the government body that screens foreign takeovers for
security concerns--to look closely at Chongqing Casin Enterprise
Group's recent agreement to buy the Chicago Stock Exchange.
Last month, Royal Philips NV said it was terminating its $2.8
billion deal to sell its Lumileds LED lightbulb business to an
investment fund led by Chinese venture-capital firm GSR Ventures
following undisclosed concerns from CFIUS.
Write to Rick Carew at rick.carew@wsj.com and Julie Steinberg at
julie.steinberg@wsj.com
(END) Dow Jones Newswires
February 21, 2016 05:44 ET (10:44 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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