By Wang Junfeng, Partner, and Edward Jing, Partner, King & Wood’s Securities & Capital Markets Group
2008 is destined to be an extraordinary year for global cross-border M&A. King & Wood, as a leading law firm deeply rooted in this activity in China, has noticed the following trends in the second half of 2007 and the first half of 2008…
I. With regard to Chinese enterprises’ overseas M&A:
- Considering the combined effect of RMB appreciation, excessive domestic liquidity, and the continuous rise of inflation causing concerns for the nation’s economy and the people’s livelihood, Chinese regulatory authorities continue to strictly limit or prohibit foreign companies’ M&A in the fields of high energy consumption,certain natural resource-oriented industries, and the real estate industry.
- On the expectation of RMB appreciation, overseas capital has shown high enthusiasm for RMB assets. Among which, equity M&A dominated by privately offered funds have become the main force of foreign companies’ M&A activities in China.
- The high valuation of China’s capital market in 2007 has recently led to an apparent decrease in M&A by foreign companies towards Chinese listed companies. At the end of 2007, the total number of Chinese listed companies reached 15,570, with a total market capitalization of RMB32,710 billion Yuan including almost all high-quality companies across all industries in China. This is a market not to be neglected for long by foreign companies’ M&A activities. It can be expected that, with the adjustment of the domestic capital market, M&A by foreign companies towards Chinese listed companies will increase in 2008 and 2009.
- Following the increase of Chinese enterprises’ overseas M&A, protectionism begins to prevail in jurisdictions governing the overseas target companies which has also led Chinese public opinion to pay increasing attention to the problems of national interest that may arise from M&A by foreign companies towards Chinese enterprises. With domestic public opinion paying more attention to foreign companies’ M&A in China, such M&A activities, especially those towards companies in sensitive industries or leading companies in their respective industries, will encounter more resistance.
- While foreign lobbying groups begin to play a role in foreign companies’ M&A in China, legislation regulating lobbying activities in their numerous forms by various interest groups is still virgin ground in China.