24 October 2019

BDA’s Mark Webster speaks to Bloomberg on China Inc’s exit challenges


October 22, 2019
Manuel Baigorri

China Is Struggling to Offload Foreign Acquisitions, From Yachts to Pizza

China Inc. is struggling to offload overseas businesses and the accompanying debt in an increasingly volatile market.

In just a few weeks, companies from yacht makers to luxury clothing and pizza outlets — acquired by Chinese firms in recent years — have either scrapped planned initial public offerings or sought alternatives to reduce their debt piles.

Ferretti SpA, the Italian superyacht maker controlled by China’s SHIG–Weichai Group, shelved its planned Milan listing last week, citing weak market conditions. Shandong Ruyi Technology Group Co., which spent over $4 billion on purchases including U.K. trench coat maker Aquascutum, introduced a local state-owned firm as its second-largest shareholder amid rising pressure to repay debt.

Chinese firms started selling off assets two years ago when the government tightened curbs on capital outflows and stepped up scrutiny on foreign acquisitions. Geopolitical factors from the U.S.-China trade war to Brexit and protests in Hong Kong and Chile are hurting sentiment in dealmaking on uncertain outlook.

“It’s a big process of adjustment,” Mark Webster, a managing director at investment banking adviser BDA Partners in Shanghai, said in a phone interview. “Some Chinese companies made overseas acquisitions at the top of the cycle and ended up overpaying for assets that did not make a lot of strategic sense. They are now finding it challenging to offload those businesses at fair values.”

Attempt Stymied

Beyond luxury, sectors less sensitive to economic cycles are also having issues. PizzaExpress Ltd. hired a financial adviser to prepare for debt talks with its creditors, people familiar with the matter said earlier this month. The iconic U.K. casual dining chain has been struggling with its domestic market at a time when it’s expanding in China after its acquisition by Chinese private equity firm Hony Capital in 2014.

The volume of Chinese outbound deals was at $59 billion so far this year, a 13% drop from a year earlier, according to data compiled by Bloomberg. It’s a far cry from the peak of such M&A activities in 2016, when China National Chemical Corp. agreed to buy Swiss agrochemical maker Syngenta AG for $43 billion.

China’s HNA Group Co., once among the most aggressive in foreign acquisitions, found itself stymied in an attempt to sell out of plane lessor Avolon Holdings Ltd. for a valuation of about $8.5 billion, Bloomberg News has reported.

“Bigger financial and regulatory hurdles and the global geopolitical instability make it even harder to get deals done now,” Webster said.

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