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Asian corporates are no longer just window shopping

By Rashmi Kumar
22 Apr 2014

The much heralded Asian M&A boom appears to be finally underway as leading names including Dongfeng Motor Corp, Lenovo and Oversea-Chinese Banking Corp snap up companies. The willingness of banks to lend funds is driving acquisition momentum and with the economic environment perking up, it’s time for companies to splash out.

M&A is in the air. China’s Dongfeng Motor recently signed a €830m ($1.2bn) loan to acquire a 14% stake in French automobile company Peugeot Citroën. The Netherlands’ Vitol, which is buying Royal Dutch Shell’s Aussie refinery and retail divisions, is seeking $2.05bn from the Asian market to fund the purchase.

Singapore’s OCBC, meanwhile, has obtained a HK$38.4bn ($4.95bn) financing for its acquisition of Hong Kong-based Wing Hang Bank, while Lenovo is speaking to lenders for roughly $1bn for numerous planned acquisitions, including that of Motorola Mobility.

The flurry of deals, greater than can be listed here, is a sign that the long expected buying spree by Asia’s corporates is finally underway.

One reason for this surge in acquisition interest is the improved sentiment towards emerging markets

The massive fund outflows witnessed in mid-2013 after former Federal Reserve chairman Ben Bernanke opened up about tapering of quantitative easing seems like a thing of the past. Equity inflows to emerging Asia stood at $1.5bn for the week ending April 9, 2014, compared to outflows totalling almost $4bn in mid-June last year, according to EPFR Global.

This has injected corporates with more confidence about the outlook for them and their targets.

More important though is the fact that companies considering expanding their asset portfolio have plenty of help from Asia’s banking community. 

Lenders in the region are brimming with liquidity and are eager to underwrite event-driven transactions, in part because there have been so few, but also because of the ancillary business that goes along with it.

Add to that the gradual widening of spreads, and it looks sensible for companies to lock in acquisition funds now when pricing is still reasonable and liquidity abundant.

If companies in Asia are serious about expanding, both in Asia and internationally, acting now is their best bet. It’s time to open the cheque book.

By Rashmi Kumar
22 Apr 2014