China-Japan bidding rivalry heats up in Asean

By IZZAT RATNA

The latest edition of “Spotlight Asia” — Kroll’s quarterly mergers and acquisitions (M&A) newsletter has revealed that competition between Chinese and Japanese buyers is heating up as both countries seek to expand in Asean.

China was the top bidder from 2014 to the first-quarter of 2017 (1Q17), accounting for 19% of the total inbound M&A with 86 deals worth US$15.3 billion (RM65.48 billion), while by volume, Japan held the top seat with 182 deals worth US$11.8 billion.

Japanese acquisitions are driven by the need to access new markets and transfer manufacturing assets out of Japan, into cheaper Asean labour markets.

Chinese acquisitions, despite government capital controls, are also likely to continue as Asean offers cheaper targets than more advanced markets — corporate China seeks value assets to bolster sustainable growth.

Significantly, China’s Belt and Road Initiative may open the floodgates of Chinese investments.

In May, China announced plans to invest US$124 billion in the initiative, which could fuel infrastructure development in the region, laying the brickwork for growth in other sectors.

In October 2015, China and Indonesia entered into a US$5.5 billion joint venture to build Indonesia’s first national high-speed rail with 75% funding from China Development Bank.

Furthermore, the Regional Comprehensive Economic Partnership (RCEP) could boost Chinese and Japanese interest in Asean forays. Both countries have demonstrated impetus in finalising the RCEP with the demise of the Trans-Pacific Partnership.

Meanwhile, 2016 closed with 89 intra-regional deals worth US$18.9 billion, registering a sizable year-on-year increase of 368% in value and 19% in volume from 2015, when only 75 deals worth US$4 billion came to to market.

M&A within Asean may become more pronounced as the Asean Economic Community — formalised in December 2015.

It represents the establishment of a unified market of US$2.6 trillion with a combined population of more than 622 million.

Thailand was the top target jurisdiction for intra-Asean M&A by value from 2014 to 1Q17, with US$10.3 billion from 38 deals.

The country is also the top bidder for intra-regional M&A by value, contributing to 46 deals worth US$12.9 billion from 2014 to 1Q17.

Activity in 1Q17 was high-lighted by the US$440 million acquisition of Vietnam Construction Materials JSC by Thailand-based SCG Cement-Building Material Co Ltd.

Indonesia came in first for volume and second for value as a target for intra-regional M&A from 2014 to 1Q17, with 76 deals worth US$8.1 billion.

With 30 deals worth US$4.5 billion, Vietnam was the third leading target jurisdiction by value from 2014 to 1Q17, while companies listed on its stock exchange continue to face restrictions in gaining additional foreign ownership — the government is reportedly planning for foreign involvement in infrastructure projects, which are expected to require US$400 billion over the next 10 years.

Coming in second for intra-regional M&A by volume are technology, media and telecommunications (TMT) with 42 deals worth US$2.6 billion from 2014 to 1Q17.

TMT could see further deal-making as Asean corporations turn to inorganic growth to catch up with more advanced economies on a global trajectory towards a fourth industrial revolution.