Chinese companies invested US$56bil overseas in 2008

  • Business
  • Saturday, 05 Dec 2009

WHEN IBM sold its personal computer manufacturing business to Lenovo in December 2004 for US$1.25bil, the deal was seen as the most prominent overseas acquisition by a Chinese company back then. The year before, foreign direct investments (FDIs) by Chinese companies amounted to US$2.9bil.

Much has changed since the Lenovo purchase. According to a June 2008 report by McKinsey, the level has risen tenfold since then. In the first quarter of 2008, Chinese companies announced FDIs of almost US$26bil, nearly twice as much as during the same period the year before.

China’s Ministry of Commerce says Chinese companies invested a record US$55.9bil overseas in 2008, up 111% over 2007. Another research report says China was the largest acquirer in the Asia Pacific in the first quarter of this year, investing some US$353mil in 18 announced deals in Asia.

Clearly, China is in the mood for mergers and acquisitions (M&As). Given China’s rapid growth in recent years and its strategic goals, this is no surprise.

The McKinsey report points out that many of the M&As by Chinese companies are to secure access to supplies of critical raw materials and to gain access to new markets. Here are some of the major M&As (and a few that did not happen or have not happened) in recent times involving companies from China:

·This is not a large transaction relatively, but it is close to home. In July 2008, a subsidiary of state-owned enterprise Sinochem International Corp said it would buy a 51% stake in GMG Global Ltd, a Singapore-listed planter and processor of natural rubber, for US$198mil.

Now a subsidiary of Sinochem, GMG has investments in Africa and Indonesia, while Sinochem is described as China’s leading natural rubber player. Listed on the Shanghai Stock Exchange, Sinochem specialises in the trading, manufacturing and transportation of chemicals, plastics, rubber and metallurgy products.

·In February this year, state-owned Aluminium Corp of China (Chinalco) agreed to invest US$19.5bil in Anglo-Australian mining giant Rio Tinto Group, in a deal said to be China’s largest overseas acquisition.

Rio Tinto said Chinalco would buy US$7.2bil of convertible bonds and acquire stakes in projects for US$12.3bil in Chile, Australia and the United States. Chinalco would own 18% of Rio Tinto should it convert the debt.

However, in June, Rio Tinto walked away from the deal. Instead, it opted for an iron ore joint venture with rival BHP Billiton and said it would sell its shares to reduce debts.

·PetroChina Co, China’s biggest oil producer, completed the purchase of 45.5% in Singapore Petroleum Co last June. Following that, PetroChina would make a buyout offer for the balance of the shares. The entire exercise would cost US$1.02bil.

PetroChina is the listed unit of China’s biggest oil and gas producer. It bought the 45.5% stake from Singapore-based Keppel Corp Ltd. Singapore Petroleum is a refiner.

·In June, shareholders of OZ Minerals Ltd overwhelmingly voted for the sale of most of the company’s assets to China’s Minmetals for about US$1.4bil. The acquisition is the largest by a Chinese company in the Australian mining sector.

It was reported that state-owned Minmetals had raised the offer by 16% only hours before the vote at OZ Mineral’s annual meeting in Melbourne. Among the assets that Minmetals picked up in the deal are a copper and gold mine in Laos, and two zinc mines in Australia.

·China Petrochemical Corp (Sinopec) announced in June that it would buy Geneva-based Addax Petroleum Corp for US$7.3bil. Completed in August, it was described by Xinhua News Agency as the largest overseas takeover by a Chinese oil company. The acquisition gave Sinopec oil reserves in Iraq’s Kurdistan and West Africa.

·Little-known Sichuan Tengzhong Heavy Industrial Machinery raised eyebrows in June when it said it wanted to buy General Motors Corp’s Hummer division. The Chinese company said it aimed to close the deal by early 2010. It is awaiting the Chinese government’s approval.

·Last August, Yanzhou Coal, billed as China’s No. 4 coal producer by market value, announced that it would buy Australian coal miner Felix Resources Ltd, for US$2.9bil. The Australian and Chinese regulators have given the green light.

·Air China Ltd, the world’s biggest carrier by market capitalisation, seized a bargain in August and raised its shareholding in Cathay Pacific Airways Ltd to a shade under 30%. It said it would buy the additional 12.5 % stake for US$817mil from the cash-strapped Citic Pacific.

·Athabasca Oil Sands Corp said in September that PetroChina Co, China’s largest oil company, would buy 60% equity in the Canadian company’s oil sands projects for US$1.7bil. It is the Chinese company’s biggest North American acquisition.

According to a news report, PetroChina has acquired gas fields in Kazakhstan and a Singapore refinery in deals accounting for about a fifth of China’s US$17bil spending on overseas energy assets since December.

·On Sept 30, Industrial and Commercial Bank of China (ICBC), the world’s largest bank by market value, said it planned to buy Thailand’s ACL Bank for about US$545mil. ICBC had agreed to buy a 19.26% stake in ACL Bank from Bangkok Bank for US$105mil, and also planned to make an offer for ACL’s remaining shares.

This would be ICBC’s first acquisition in Thailand. The Chinese bank has made a few overseas purchases in the last few years.

·Bloomberg last month reported that Koenigsegg Group AB had scrappeda deal in which it was supposed to team up with Beijing Automotive Industry Holding Co to buy a stake in General Motors Co’s Saab unit.

Beijing Auto agreed in September to take a minority stake in the investment team set up by Koenigsegg to take over Saab.

Koenigsegg’s pullout is yet another failed attempt by a Chinese automaker to gain control of an established foreign brand. In July, GM rejected Beijing Auto’s bid for its Opel unit.

SAIC Motor Corp, China’s biggest domestic automaker, bought control of South Korea’s Ssangyong Motor Co, but that acquisition soured due to a sales plunge.

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