| To: richardred who wrote (3558) | 4/13/2014 11:21:18 PM | | From: richardred | | | | China greases the wheels of outbound M&A
  
Chinese companies are set to become more competitive globally in the merger and acquisition market after the government’s decision to ease restrictions on outbound investments.
Starting from May 8, Chinese firms planning to invest less than $1 billion in an overseas company will no longer need to seek approval from authorities but only need register with the National Development and Reform Commission (NDRC), according to a statement by the NDRC.
Deals of above $1 billion will still need the approval of the NDRC, while those above $2 billion will require the approval of the State Council.
Currently, overseas resource-related investments above $300 million and deals in other sectors for more than $100 million need approval from the NDRC.
The uncertainty surrounding regulatory approval and the lengthy waiting time tends to put Chinese companies at a competitive disadvantage when it comes to overseas investments, according to bankers and local companies.
Companies can typically wait three or four months for regulatory approval for proposed overseas investments.
An example is Sichuan Hanlong Group’s attempted acquisition of Australia-listed mining company Sundance Resources in 2011.
Hanlong planned to buy 100% of Sundance for about A$1.4 billion in September 2011. However, it only received NDRC approval in August 2012 when the price of iron ore had dropped and Hanlong renegotiated with Sundance on terms. The deal was finally cancelled.
Chinese pork supplier WH Group’s $4.7 billion acquisition of Smithfield Foods in the US last year is an illustration of how Chinese companies take on additional risk due to the regulatory approval system.
The company, then called Shuanghui International, had to pay $275 million fees — so called reverse breakup fees — in advance to Smithfield due to the risk of not gaining approval.
“When we help a Chinese company acquire overseas assets, one of the most important things we care about is whether it can get approval easily,” said a Hong Kong-based M&A banker.
Target companies sometimes will consider the strict regulation as a risk that could delay the deal process, which makes them less willing to cooperate with Chinese companies, said the banker.
China’s easing of the rules for outbound investments comes at a time when local companies are rushing out to expand their businesses globally.
Chinese investors had invested $104.5 billion in 5,090 foreign companies from 156 overseas markets in 2013, and non-financial outbound foreign direct investment rose 16.8% last year to $90.2 billion, according to Ministry of Commerce data.
Domestic investors and analysts are hoping more reform measures will be announced by the authorities to reduce red-tape and further grease the wheels for overseas investments.
The major challenge is the difficulty in financing, said Ma Weihua, chairman of Wing Lung Bank and former president and CEO of China Merchants Bank, in the Boao economic forum last week.
“It’s unfeasible for Chinese companies to borrow for overseas investments because loans can not be counted as capital according to China’s rules in bank borrowing,” said Ma in a panel discussion about Chinese companies going global on April 9.
As such, local companies, especially privately owned companies that lack government financial support and access to overseas fundraising channels, can’t borrow domestically to fund their outbound investments.
Zhang Xin, CEO and co-founder of large private developer Soho China, spoke on the same panel about the limits overseas-listed property companies are faced with.
For example, they are only allowed to invest their capital raised outside China in domestic markets rather than overseas markets because their businesses are supposed to be in China. Zhang said this had hindered her company in overseas investments.
The NDRC’s new rules do not apply to investment projects in "sensitive countries, regions or sectors," said the NDRC. Sensitive countries and regions include those that have not established diplomatic relations with China, are under international sanctions, or are suffering wars and internal disorders.
Sensitive sectors refer to businesses in telecoms infrastructure, large-scale overseas land exploration, water conservancy projects, power networks and news media, the NDRC statement said.
© Haymarket Media Limited. All rights reserved.
financeasia.com
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| From: richardred | 4/13/2014 11:28:49 PM | | | | | | Global commodity traders get deal fever
BIG changes are under way among global energy and food commodity traders, with a flurry of first-quarter acquisitions and leadership moves that cover Asian, European and North American companies.
Last month, Swiss firm Mercuria Energy stepped closer to joining Vitol, GlencoreXstrata and Trafigura at the top of the independent energy and metals trading hierarchy, following its $US3.5 billion purchase of US investment bank JP Morgan’s physical commodity operation.
Mercuria’s deal gives it better access to the North American oil and gas scene, including some of the rich shale plays such as Bakken in North Dakota. It also picks up JP Morgan’s crude oil storage leases in the Canadian oil sands.
Vitol (2013 turnover $US307 billion), GlencoreXstrata ($US233 billion) Trafigura ($US133 billion) and Mercuria ($US100 billion) between them have revenues of close to $US800 billion a year, trading in oil and gas, metals and other commodities, and through ownership stakes in mines, refineries and other production assets.
For Mercuria co-founders Marco Dunand and Daniel Jaeggi, the JP Morgan acquisition gives them extra scale as they pit their trading skills against Vitol’s veteran boss Ian Taylor, GlencoreXstrata CEO and master strategist Ivan Glasenberg, and Trafigura’s new chief executive, Australian Jeremy Weir.
Weir, who previously ran Trafigura’s mining and market risk, took on the top job on March 24 after Trafigura founder and chairman, Frenchman Claude Dauphin, stepped back from a daily executive role to undergo medical treatment.
Another key change last month among the trading firms came from fifth-ranked Gunvor, which turned over $93 billion in 2012 and says it trades 2.5 million barrels a day of oil equivalent, or almost 3 per cent of world supply.
Gunvor co-founder and Finnish-Russian citizen Gennady Timchenko sold his 43.5 per cent stake to his Swedish business partner Torbjorn Tornqvist on March 19 to avoid any impact on the company from US sanctions designed to pressure Russia over its Crimea intervention.
Gunvor said on March 20 that to ensure the group’s “continued and uninterrupted operations” ahead of “anticipated economic sanctions,” Timchenko had sold his entire stake a day earlier to co-founder Tornqvist.
“As a result, Mr Tornqvist has become the majority owner of Gunvor Group with an 87 per cent stake,” it said. The remaining 13 per cent is held by Gunvor senior employees and there are no outside shareholders, according to the company.
In a statement the same day, the US Treasury said it was sanctioning Timchenko as one of a number of individuals who was “controlled by, has acted for or on behalf of, or has provided material or other support to, a senior Russian government official.”
The US Treasury said Timchenko’s “activities in the energy sector have been directly linked to Putin. Putin has investments in Gunvor and may have access to Gunvor funds.”
Gunvor denies this.
After the share sale, Tornqvist said the company would benefit from a more diversified shareholder base, and he may seek to bring in a strategic investor.
At Mercuria, Dunand and Jaeggi between them control about 30 per cent of their company, with 50 per cent held by employees and the remaining 20 per cent with a group of early investors. Dunand and Jaegii previously have said they are looking for an Asian investor to take a stake of about 10 to 20 per cent, with China’s State Development and Investment Corporation regarded as a likely candidate.
The five biggest energy traders have their counterparts on the food front, where names such as Archer Daniels Midland (ADM), Cargill, Bunge, Noble, Louis Dreyfus and Olam dominate the agribusiness trade, in concert with the Japanese and Korean general trading companies and the Japanese farmers’ cooperative Zen Noh.
But the biggest recent mover is China’s state-owned Cofco, which earlier this year took a 51 per cent stake in Dutch grains and oilseeds trader Nidera to give it a foothold in Latin America and Eastern European production.
It followed up last week with a similar deal in Asia, buying 51 per cent of Singapore-listed Noble Group’s agribusiness division Noble Agri to give Cofco a vehicle that expands its Middle Eastern and Asian reach. Noble CEO Yusuf Alireza will be interim head of the operation. China’s sovereign wealth fund China Investment Corp (CIC) has held a 15 per cent stake in Noble Group since 2009.
Cofco said Noble Agri would become its “principal international origination platform.” Cofco’s partner in the Noble Agri acquisition is the private equity firm Hopu Investment, which will hold a one-third stake in Cofco’s investment consortium. Hopu’s backers include Goldman Sachs China and Singapore’s state-owned investment company Temasek Holdings.
Last month Temasek offered to take over the other big Singapore-listed food trader, Olam International, in a deal that values it at $US4.2 billion. The offer by Temasek, which already owns 24 per cent of Olam, closes on May 9. Singapore’s competition watchdog, the Competition Commission, gave a green light to the bid this week. Olam’s founder, the Kewalram Chanrai family, has a stake of just over 20 per cent.
Geoff Hiscock writes on international business and is the author of “Earth Wars: The Battle for Global Resources,” published by Wiley
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