China's Deals Market Cools
Regulatory and Political Risks
Slow Mergers and Stock Sales
HONG KONG -- Where are all the China deals?
Last year was a boom time for Chinese investment banking. Mergers were hot. Anheuser-Busch Cos. beat out SABMiller PLC for China's oldest brewer in the country's first hostile-merger contest. The world's third-largest retailer, Tesco PLC, bought a hypermarket chain. The year was capped by Lenovo Group Ltd.'s landmark purchase of International Business Machines Corp.'s personal-computer business.
Likewise for stock sales and initial public offerings of shares. Chinese companies sold $25 billion of stock last year, according to market-data provider Dealogic, the second-busiest year ever, with two of China's top 10 biggest deals -- Ping An Insurance (Group) Co. and Semiconductor Manufacturing International Corp.
This year, however, the market has been much quieter. In the year to date, Chinese companies sold half as much stock as they did all of last year. Merger volumes for the period are down 45%.
To understand what's happening, or not happening, start with Victor Ho, a partner at the law firm of Allen & Overy in Shanghai. Mr. Ho, with experience in cross-border M&A and venture capital, is inundated with foreign companies looking to buy Chinese assets.
His experience makes him more cautionary than enthusiastic. He cites one promising consumer-electronics deal in particular. Six months into the talks, Mr. Ho says, a questionable customs arrangement cropped up. The Chinese party called it a technicality. The foreign buyer decided it couldn't take the risk, and the deal "cratered," he says.
Had the buyer taken its time to vet the company before getting into the thick of the deal making, Mr. Ho says, the company could have saved six months and half a million dollars in legal fees. "Chinese parties do not value risk the same way a foreign investor does," Mr. Ho says. "Everybody wants to do a deal. There are good opportunities, and there are a lot of dogs as well."
A disconnect in risk perception is one reason deals fail, but there are many others. Arduous due diligence in a land of low corporate transparency, valuation disagreements, complicated regulatory approvals at the city, provincial and national level, and basic culture clashes dog M&A in Asia's hottest deal spot. At the same time, the rules are changing rapidly as the communist country morphs into a market-driven economy.
"Any foreign buyer of a Chinese company is going to have to have some appetite for regulatory risk, as well as the sort of typical political risk that you look at in an emerging-markets deal," says Matt Adler, a lawyer at Clifford Chance in Beijing.
Meanwhile, Chinese companies competing for offshore assets can be hurt by a lack of sophistication and U.S. government concerns over national security.
Many deals fail, for different reasons. China National Offshore Oil Corp. looked at the big U.S. energy company Unocal but got beat out by ChevronTexaco Corp.'s $16.8 billion bid in April. Shanghai Automotive Industry Corp. was in talks to partner with MG Rover Group Ltd. before it went under last month.
"Our experience has been it takes a long time to get a deal done" in China, says Xiang Dong Yang, a managing director at Carlyle Group in Hong Kong.
The private-equity group, which last year said it planned to invest $1 billion in China, hasn't closed a buyout there for two years, Mr. Yang says. Carlyle has spent well over a year trying to buy control of one of the country's biggest construction-equipment makers, Xuzhou Construction Machinery Group Inc. Mr. Yang declines to discuss the transaction.
Warburg Pincus LLC and Citic Capital Markets Holdings Ltd., the Hong Kong financial arm of a Beijing government entity, announced in December a plan to buy a Chinese pharmaceutical company in the northeastern city of Harbin. More than four months later, they are still waiting for approval from the central government before they can begin.
Yet as the scuppered combinations suggest, the deals are out there, percolating. One veteran deal maker estimates that for every deal that makes it, there are two that don't. Mr. Ho puts the ratio at one to eight.
"M&A in China is still not a big enough business for there to be a constant flow of transactions," says Jonathan Zhu, Morgan Stanley's head of China banking. But, he adds, "the level of M&A dialogue today is more active than it was 12 months ago."
Bankers promise a busy second half, with Chinese companies buying offshore assets and multinationals buying a foothold in China. They identify natural resources, retail, consumer goods and telecommunications as the sectors to watch. As China gradually moves to open its economy under its World Trade Organization obligations, foreign companies will have more opportunities.
Indeed, deals are getting done. In January, China Network Communications Group Corp. concluded a transaction at least nine months in the making when China's second-biggest landline company bought a 20% stake in PCCW Ltd. for a little more than $1 billion. The two companies are seeking areas of collaboration such as broadband television, mobile-phone service and real estate.
The IPO market is about to take off with about $6 billion in stock sales. China Shenhua Energy Co., the country's biggest coal producer, is about to sell $3 billion of stock, and Bank of Communications, shipping group China Cosco Holdings Co. and China Minsheng Banking Corp. will follow.
Foreign banks are taking advantage of rule changes that allow them to own as much as 20% in domestic banks. Already this year, ING Groep NV has bought a stake in Bank of Beijing for about $166 million, and Commonwealth Bank of Australia has spent $78 million buying into a second bank, Hangzhou City Commercial Bank. Last week, HSBC Holdings PLC spent $1.04 billion to double its stake in China's second-largest life insurer, Ping An Insurance Co.
Two of China's biggest banks, China Construction Bank and Bank of China, are actively courting investors such as Bank of America Corp. and Credit Suisse Group AG to buy small but expensive stakes before multibillion-dollar share sales in the next year.
Still, the financial sector is the most exposed to many of the problems that have proved to be deal killers. China's banks are mired in bad loans and tainted by embezzlement scandals reaching from local branch managers to the executive suite.
The dangers here and in other sectors have foreign buyers frowning over the books during due diligence, says Gavin Geminder, KPMG Corporate Finance Ltd.'s head of China and Hong Kong. Once the accounts have been put in order, he says, "you can end up with very different numbers."
And even after you reach a deal the numbers can change. In December, Newbridge Capital LLC completed its $150 million deal for a 17.89% stake in Shenzhen Development Bank. Last month, the Shenzhen bank announced it was setting aside 150 million yuan ($18.1 million) to cover potential losses from improper loans made before Newbridge bought its stake. That is just under half of the bank's profit for 2004.
中国并购交易哪里去了？
中国那些并购业务都藏到哪里去了呢？
去年对中国投资银行市场来说是个丰收年，并购交易非常活跃。安海斯(Anheuser-Busch Cos.)在竞购中国历史最悠久的一家啤酒企业的较量中最终击败SABMiller PLC胜出。这次交易也是中国第一起恶意收购。全球第三大零售商Tesco PLC收购了中国一家大型连锁超市。去年中国并购市场的收官之作是联想集团(Lenovo Group Ltd.)收购国际商业机器公司(IBM)个人电脑业务的具有里程碑意义的交易。
股票发行和首次公开募股市场的情况也是这样。据市场数据公司Dealogic提供的数据，去年，中国企业共发行了价值250亿美元的股票，在历年来的发行额中排在第二位；其中平安保险(Ping An Insurance (Group) Co.)和中芯国际(Semiconductor Manufacturing International Corp.)的上市交易跻身中国10大上市交易之列。
不过今年以来，这一市场一直非常安静。截至目前，中国企业发售的股票是去年全年发售量的一半。而同期并购交易数比去年减少了45%。
要理解这种现象背后的原因，安理国际律师事务所(Allen & Overy)合伙人何志恒(Victor Ho)或许可以给我们一些启示。何志恒在跨境并购业务和风险投资方面有丰富经历，现在他为有意收购中国企业的外国公司提供咨询服务。
他的经验使他在热情之外更多了一分谨慎。他列举了一宗本来很有希望成功的电子消费产品企业并购的例子。在进行了6个月的谈判之后，突然在海关事务方面出了一个很可疑的问题。中方称只是技术性问题。但外国买家认为不能冒这个险，最后这桩交易还是泡汤了。
何志恒说，如果这家外商在进入决策的重要阶段之前能花些时间考察对方公司，那也许能给它节省6个月的时间和50万美元的法律费用。他说，中方和外方对待风险的方式不同。每个人都希望作成生意。市场上是有好机会，但同样也有一些“垃圾”。
在风险概念上的隔阂是许多交易最终未能谈成的一个原因，但还有其他许多原因。在中国这样一个企业透明度低下、价值观分歧很大，国家、省、市各级部门的监管错综复杂，并购交易必然伴随著艰苦的尽职调查和剧烈的文化冲突。与此同时，在中国向市场经济过渡的过程中，许多规则也在迅速改变。
高伟绅律师事务所(Clifford Chance)驻北京律师麦特?阿德勒(Matt Adler)说，任何收购中国企业的外国买家都将不得不对监管方面的风险以及那种在新兴市场国家常见的政治风险有足够的承受力。
与此同时，中国企业竞争海外资产时，可能会因为缺乏经验和国家安全方面的担忧而受损。
许多交易中途夭折的原因各不相同。中国海洋石油公司(China National Offshore Oil Corp.)曾觊觎美国大型能源企业加州联合石油公司(Unocal)，但最后被雪佛龙德士古(ChevronTexaco Corp.)以168亿美元的出价击败。上海汽车集团(Shanghai Automotive Industry Corp.)收购MG罗孚汽车集团(MG Rover Group Ltd.)的谈判上个月也告吹了。
股权投资公司凯雷集团(Carlyle Group)驻香港董事总经理杨向东说：“从我们的经验看，在中国谈成一桩交易要花费很长时间。”
杨向东说，凯雷集团去年曾表示计划在中国投资10亿美元，但两年来该公司不曾达成一笔收购交易。该集团为收购中国最大的建筑设备制造商徐州工程机械集团(Xuzhou Construction Machinery Group Inc.)的控股权已花费了一年多时间。不过他不愿透露与这起交易有关的情况。
华平创业投资公司(Warburg Pincus LLC)及北京市下属在港金融企业中信资本(Citic Capital Markets Holdings Ltd.)去年12月宣布，计划收购位于东北哈尔滨市的一家制药厂。但4个多月后，他们仍在等待中央政府的批准。
一位并购市场资深人士估计，在中国，并购谈判平均每三起有一起最后能达成交易，而何志恒估计的比例是每九起有一起成功。
摩根士丹利(Morgan Stanley)中国区银行业务负责人竺稼说，中国目前的并购业务规模还不够大，将来会不断有交易产生。他还说，今天并购谈判比12个月前要活跃多了。
投行人士相信，下半年并购活动会比较活跃，中国企业会涉足海外资产，而跨国公司也会在中国寻找立足点。他们指出，自然资源、零售、消费品和电信等领域值得关注。随著中国根据加入世界贸易组织(WTO)时的承诺逐步开放市场，外资企业将有更多机会。
的确，一些交易已经完成。今年1月，中国第二大固定电话公司网通集团(China Network Communications Group Corp.)在与香港电讯盈科(PCCW Ltd.)经过至少9个月的谈判后最终达成交易，以10多亿美元收购了后者20%的股份。两家公司希望在宽频电视、移动通讯服务和房地产等方面开展合作。
IPO市场也即将启动，目前等待上市融资的规模总计价值60亿美元左右。中国最大的煤炭生产企业神华能源(China Shenhua Energy Co.)即将发行价值30亿美元的股票，其后，交通银行(Bank of Communnications)、远洋控股(Cosco Holdings Co.)及中国民生银行(China Minsheng Banking Corp.)等也将陆续上市。
政府已将允许外资在本地银行的最高持股比例上调到20%，这对外资银行非常有益。 荷兰国际集团(ING Groep NV)今年斥资1.66亿美元收购了北京银行(Bank of Beijing)部分股份；澳洲联邦银行(Commonwealth Bank of Australia)今年又斥资7,800万美元收购了杭州城市商业银行(Hangzhou City Commercial Bank)的部分股权。上周，汇丰控股(HSBC Holdings PLC)以10.4亿美元的价格将其在中国第二大寿险公司平安人寿(Ping An Insurance Co.)的股权增加了一倍。
中国四大商业银行中的两家中国建设银行(China Construction Bank)和中国银行(Bank of China)明年将上市融资数十亿美元，目前，它们正在积极向美国银行(Bank of America Corp.)和瑞士信贷集团(Credit Suisse Group AG)等银行游说，希望它们少量参股。
不过，金融行业是存在有碍并购交易的问题最严重的一个领域。不良贷款和挪用资金丑闻困扰著银行业。丑闻涉及的人既有地方分行的管理人士，也有总行一级的高层人士。
毕马威企业财务公司(KPMG Corporate Finance Ltd.)主管香港和中国大陆业务的负责人高铭达(Gavin Geminder)说，在对银行或其他领域的企业进行尽职调查的过程中，它们的帐目每每让外国买家感到困惑。如果将这些帐目整理好，得出的结论会与原来完全不同。
而且在双方达成交易后，帐目的数字还会变。去年12月份，新桥资本(Newbridge Capital LLC)斥资1.5亿美元完成了收购深圳发展银行(Shenzhen Development Bank)17.89%股份的交易。但上个月，深发展宣布拨出人民币1.5亿元以弥补新桥收购之前发生的不良贷款可能带来的损失。这个数字接近深发展2004年利润额的一半。
