China to miss Asian takeover deal boom despite likely easing of crackdown

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HONG KONG, June 14 (Reuters) – Buyout funds are expected to extend a record spending spree in Asia through the rest of the year, but they will mainly seek deals outside China, where concerns over the economy should outweigh any easing of a regulatory crackdown, negotiators said.

Private equity mergers and acquisitions (M&A) activity in Asia excluding Japan had a record start to the year with $167.4 billion spent since January 1 in markets including Australia, according to data from Dealogic.

Redemptions in China, Asia’s largest market for deals, however, slowed sharply in 2022 as Shanghai’s two-month lockdown and other coronavirus-related restrictions in many parts of the country hurt economy and abruptly halted potential transactions.

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Acquisitions backed by financial sponsors of Chinese assets totaled just $1.5 billion this year, less than a tenth of the value in the same period last year, according to Dealogic data.

A sluggish deal market in China could impact investment returns for private equity funds and prompt them to double down on mergers and acquisitions elsewhere, dealmakers said. Funds in the region are already sitting on a record $642 billion in unspent cash, or “dry powder”, according to data provider Preqin.

“Significant macroeconomic, geopolitical and pandemic-related headwinds remain with respect to China, which may continue to dampen sentiment to pursue investment in China at least for the immediate future,” said Steven Tran, Partner. of the law firm Mayer Brown.

The record value of the takeover deal, however, suggests that some APAC-focused funds could reallocate more of their dry powder out of China and redirect their investment activities to other parts of the region. did he declare.

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Despite signs that Chinese regulators may ease restrictions on business sectors, including technology, dealmakers do not expect to see an immediate increase in investment in the country.

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“I don’t think they (the policy changes) will lead to a major rebound in private equity investments, as most of the investments used to be speculative investments rather than value investments,” said Richard Ji, chief investment officer. investments at All-Stars Investment.

“However, at present, China’s quality assets are heavily undervalued. A regulatory reversal will reduce uncertainty and asset discounts, which is conducive to value investing,” said Ji, who is also the managing partner of the company which focuses on technology. and consumer sectors.

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Although China has remained calm on the deal front, new private capital raisings in Asia have reached $30.4 billion so far this year, according to Preqin.

Big deals this year include an unsolicited nearly $15 billion bid by a group led by KKR & Co (KKR.N) for Australia’s Ramsay Health Care Ltd (RHC.AX) in April – the largest takeover supported by this year’s EP in Asia.

A number of funds are also seeking bids for Hong Kong telecoms provider HKBN Ltd (1310.HK) as its private equity investors TPG and MBK seek to exit, three people familiar with the situation said, who declined to be identified because the information is not public.

HKBN, TPG and MBK declined to comment.

Market jitters have also led some private equity firms to seek buyers for their portfolio companies that were originally aiming for an IPO, said Samson Lo, co-head of mergers and acquisitions in Asia Pacific. at UBS.

“Private equity firms always benefit from a lot of capital and any deal in any sector these days would attract more than 10 first-round private equity bidders.”

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Reporting by Scott Murdoch and Kane Wu in Hong Kong; Editing by Sumeet Chatterjee and Muralikumar Anantharaman

Our standards: The Thomson Reuters Trust Principles.

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