(Bloomberg) — Just a few years ago, Chinese firms spent lavishly overseas on everything from luxury hotels to soccer clubs. Now they are heading for the exit amid rising demand for anything that throws off cash.
Companies in China announced divestment plans of their overseas assets worth $10.5 billion so far this year, the second-highest total since at least 1998, according to data compiled by Bloomberg. At the current pace, 2021 could surpass last year’s $15 billion sum.
“These days Chinese companies are proactively looking at their asset portfolios, rather than simply buying,” Bagrin Angelov, head of China cross-border mergers and acquisitions at China International Capital Corp., said in an interview. “When there is a good offer, they are open to at least evaluate it.”
Some of the areas seeing renewed interest include waste treatment businesses, with state-backed Beijing Capital Group Co. and Beijing Enterprises Holdings Ltd. are considering sales of their overseas holdings. China Tianying Inc. in June agreed to sell its Spanish waste management company Urbaser SA for $1.8 billion.
Unlike once-acquisitive conglomerates such as China Evergrande Group and HNA Group Co., which are now busy shedding assets to reduce debt, the current crop of Chinese sellers mostly aren’t in financial distress. Instead, they are disposing of holdings — particularly those with strong cash flows — whose valuations have surged as investors sift through the wreckage left behind by the pandemic, searching for profitable assets amid low interest rates.
Read More: M&A Boom Shows No Sign of Stopping After Epic First Half
Infrastructure and utilities are among the types of assets that Chinese firms are considering divesting. Beijing Capital is seeking $1 billion from a sale of its New Zealand business that it bought for about $667 million in 2014, Bloomberg News reported earlier.
China Three Gorges Corp. is nearing a deal to sell a 25% stake in its overseas renewable energy asset portfolio that could be valued at as much as $2 billion, people familiar with the matter have said.
“It’s good timing for these companies to monetize,” Miranda Zhao, head of mergers and acquisitions for Asia Pacific at Natixis SA, said in an interview. “These assets provide healthy yields under the current low interest-rate environment and are attractive to other strategic investors in the region or infrastructure funds.”
Foreign Scrutiny
Chinese firms raising cash from such sales would find it difficult to plow that money back into other overseas assets, given the increased scrutiny from foreign governments since the start of the coronavirus pandemic.
Last year, Australia, India and the European Union all tightened their rules for screening takeover proposals by foreign firms, moves widely seen as targeting China. As a result, overseas acquisition volumes by the country’s firms fell.
China’s Creat Group Corp. is considering selling its stake in German blood plasma supplier Biotest AG, which it bought in 2018. The pharmaceutical group now aims to reverse the deal — intended at the time to be the cornerstone of its overseas expansion — after the Committee on Foreign Investment in the U.S. hampered its ability to tap the global market.
While divestments help some Chinese firms recoup some of the money and channel it to other areas or regions of focus, others may want to hold on as acquisitions become more difficult in the current geopolitical climate. The U.K. government opened a probe in July into the takeover of the country’s biggest chip plant by Chinese-owned Nexperia NV.
“It’s one but not the only factor to consider,” said Natixis’ Zhao. “If the Chinese owners think it’s important for them to have a presence in certain regions or the target has certain technologies and synergies to be explored, they’d keep it.”
Other Chinese companies have been burned by bets outside their core businesses. Suning Holdings Group Co., which started as an appliance retailer, tried this year to sell out of indebted Italian soccer team FC Internazionale Milano SpA. The club agreed to a bailout deal with Oaktree Capital Group in May that could result in Suning losing control.
Steelmaker Jiangsu Shagang Group Co. is eyeing a sale of London-based data center operator Global Switch Holdings Ltd. that could value it at 8 billion pounds ($11 billion), Bloomberg News has reported. In June, property tycoon Lu Zhiqiang’s China Oceanwide Holdings Group Co. agreed to sell IDG, the U.S. publisher behind Computerworld magazine, to Blackstone Inc.
“In the past, the vast majority of M&A activities were Chinese companies buying assets, which was simply one-directional,” said CICC’s Angelov. “Now it’s a mix of buying and selling, including Chinese companies buying and selling minority stakes. It is becoming much more of a diversified M&A market.”
(Updates with details of U.K. acquisition scrutiny in twelfth paragraph.)
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