Missing Out On China M&A
22 Febbraio 2016 - 9:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 2/22/16)
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 important merger-and-acquisition 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. Instead there are
names like China Citic and CICC. London-based HSBC Holdings PLC
along with China Citic are up there owing to their 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 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
acquirersare relatively unknown to Wall Street banks.
New aggressive government offshoots, such as Tsinghua Unigroup
Ltd. and Shanghai Pudong Science & Technology Investment Co.,
are 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, such as
personal-computer maker Lenovo Group Ltd. and China Mobile Ltd.
Beijing-based CICC won a plum role advising HNA Group on its
agreement 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 global trade links.
It has grown into a sprawling empire with a big brokerage arm,
Citic Securities Co., and interests from property to mining.
Firms such as 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 born of necessity, because they don't have relationships
that would afford them the luxury of advising more deal-seasoned
Western firms.
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.
Chinese firms' proposed acquisitions are coming under scrutiny
in the U.S. Last week, House Republicans asked the Committee on
Foreign Investment in the U. S. -- 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, 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 the U.S. screening body.
(END) Dow Jones Newswires
February 22, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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