Outbound M&A will slow early 2017 – Shaun Rein

Increased government restrictions on the outflow of capital will severely impend the outbound M&A activities in the first quarter of 2017, after a record year in 2016, expects business analyst Shaun Rein, according to the South China Morning Post.

The South China Morning Post:

China overtook the US for outbound mergers and acquisition (M&A) volume for the first time, with US$219.3 billion of deals announced in 2016, according to data compiled by Dealogic.

The record-high deal volume came as overseas takeover activity climbed for a seventh consecutive year, according to a full review of 2016 released by Dealogic on Tuesday.

It put China slightly ahead of the US on US$217.69 billion, down from $237.99 billion in 2015, although Dealogic said the figures are based on preliminary annual data.

A total of 745 cross-border deals by China were announced in 2016, accounting for more than half of Asia Pacific’s outbound volume, which hit a record US$445.1 billion, according to the report.

But some analysts believe it might mark a near-term plateau, as the Chinese authorities strengthen their scrutiny of outbound M&A activity and tighten checks on capital outflows in a bid to curb yuan depreciation and a draining of foreign reserves pool.

Shaun Rein, managing director of China Market Research Group, said: “Outbound M&A activity will slow sharply over the first quarter of 2017, as the Chinese government is making it very difficult to get approval to convert currency, even for legitimate business transactions, because they are very concerned about capital outflow pressure.”

In an attempt to counter the yuan’s steep devaluation, the Chinese central bank has introduced stricter rules on overseas payments and lending, and guided commercial banks to scrutinise reasons for large overseas payments.