Over the past five years, four of China’s most acquisitive firms, namely, Wanda, Anbang, HNA Group and Fosun have made more than US$41 billion in overseas deals, according to research firm Dealogic. And the companies’ biggest enabler, the Chinese government, which has allowed them to amass a mountain of debt to fund the deals, is reigning them in.
As the New York Times reports this week, in December regulators zeroed in on the biggest deal makers, calling their investments in overseas real estate, entertainment and sports “irrational,” and rife with “risks and hidden dangers.”
President Xi Jinping himself approved last month a measure to bar state-owned banks from making loans to Wanda that would aid in the firm’s overseas expansion, according to a report from the Wall Street Journal.
“It feels like an avalanche,” Jingzhou Tao, a lawyer at Dechert LLP in Beijing, who does mergers and acquisitions work was quoted as saying “This is sending a shock wave through the business community.”
One significant byproduct of this development is that Chinese acquisitions of US firms will now see even more scrutiny. The Committee for Foreign Investment in the US (CFIUS), which is responsible for oversight of takeovers by non-US entities, has already stepped up efforts to more carefully review deal. Now that it is clear Beijing would like to keep investments at home, any deal that actually does get the okay from Beijing will face questions.
One such deal, Alibaba’s acquisition of US payments firm MoneyGram, has been targeted by CFIUS, which has already missed a recent deadline for approval. The transaction joins at least four other Chinese deals that have recently been forced to refile after failing to get approval, reports the Wall Street Journal.