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Tuesday, February 23, 2016, 14:40

China firms, Japan Inc in race for foreign assets

By Reuters
China firms, Japan Inc in race for foreign assets
Chairman of Swiss farm chemicals giant Syngenta, Michel Demare (right) shakes hand with Chairman of ChemChina Ren Jianxin during a press conference to present Syngenta's annual results at the company's headquarters in Basel on Feb 3, 2016. (MICHAEL BUHOLZER / AFP)

HONG KONG/TOKYO - Chinese firms' desire to expand through foreign acquisitions could put them on a collision course with Japanese companies, which are also aggressively shopping abroad to escape stagnation at home.

ChemChina's US$43 billion purchase of Switzerland's GMO-seed maker Syngenta, set to revolutionise food technology in China, has pushed China's outbound dealmaking spree to $US65 billion this year, a record for so early in the year.

Japanese firms have so far in 2016 announced US$3.5 billion of transactions, including Asahi Group Holdings' bid for the Peroni and Grolsch beer brands. With Japanese companies collectively hoarding an estimated US$3 trillion in cash, according to Sanford C. Bernstein estimates, outbound M&A is expected to accelerate.

Buyers from the two nations have already clashed over an Italian train company last year, and sources say they could soon be among the pack chasing a Thai bank.

Chinese buyers are normally state-linked so profitability is not always the top priority, while Japanese buying is led by private companies looking to expand abroad to offset deflation, flat growth and a shrinking population at home.

The Japanese buyers usually go for assets in their own sector, and relative to the Chinese are more constrained by shareholders in what they are prepared to pay.

While Chinese firms were focusing on seizing energy and food resources, the two rarely clashed.

But as Chinese firms target more advanced technology and brands to shift the economy away from low-end manufacturing, the companies from the world's second and third-largest economies are more likely to clash, especially in high-value manufacturing segments such as high-speed railways.

"As the pace of economic growth slows, more Chinese companies are set to look outside. That could lead to Chinese and Japanese companies competing for similar assets," said Keith Pogson, EY senior partner for Financial Services, Asia-Pacific.


China firms, Japan Inc in race for foreign assets

Consumers walk by the HAIER booth during the 2013 International CES at the Las Vegas Convention Center on Jan 10, 2013 in Las Vegas, Nevada. (AFP PHOTO / JOE KLAMAR)

Last year Chinese Hitachi and China's CNR Corp competed for Italian train maker Ansaldo Breda and signal-maker Ansaldo STS.

Hitachi emerged the victor as Italian seller Finmeccanica was anxious about the distraction of CNR's prospective merger with rival CSR Corp in the middle of the bid battle, sources familiar with the matter said.

And sources said on Tuesday that Canada's Bank of Nova Scotia has approached a unit of Bank of China and Japanese lenders, among others, to gauge interest in its 49 percent stake in Thai lender Thanachart, valued at US$1.7 billion.

The two nations are also likely to compete for food and beverage brands, bankers and lawyers said. Last year Asian M&A touched a record US$1.5 trillion, with Chinese and Japanese companies announcing US$113 billion and US$90 billion worth of deals, respectively.

"Japanese companies are buying assets or brands in the same industry with the aim to expand their geographical footprint," said Hikaru Ogata, CEO Asia Pacific, corporate & investment banking at Societe Generale. "These are strategic acquisitions by private companies," Ogata added.

In the United States, which has been targeted by China along with Europe, Japanese companies are expected to have an edge when bidding for telecoms, defence and energy segments that are partly restricted to Chinese firms, said Tokyo-based Mitsuhiro Kamiya, a partner at Skadden Arps Law.

Last month, Haier Group lobbed a knockout bid to buy General Electric's appliance unit, beating half a dozen suitors.

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