With Chinese companies looking to step up the pace of their international mergers and acquisitions, foreign bankers are only too happy to help. Just ask Choe Tse Wei.
Choe, 46, is the head of strategic advisory at DBS Bank, Singapore’s largest lender by assets. When Alibaba Group made it be known earlier this year that it was looking to expand into Southeast Asia, Choe and his team helped introduce the Chinese e-commerce giant to Singapore Post, a DBS client. They felt the postal services company could help Alibaba develop its e-commerce fulfillment capabilities in Southeast Asia.
On July 31 Alibaba completed the purchase of a 10.35 percent stake in Singapore Post for S$312.5 million ($249 million), becoming the company’s second-largest shareholder, behind Singapore Telecommunications. Alibaba, which is in the midst of an international road show ahead of its expected $20 billion–plus initial public offering in the U.S. later this month, plans to enter talks shortly with Singapore Post to form an e-commerce logistics venture.
“The deal is essentially helping Alibaba to extend its giant e-commerce platform into Southeast Asia, and for SingPost to further expand its existing e-commerce fulfilment business in Southeast Asia,” says Choe, whose team was sole adviser to the postal company on the deal.
Such work is on the upswing for DBS. Since 2009 the bank has advised ten Chinese companies on offshore deals worth more than $3 billion — all of them in Southeast Asia. Choe expects the work to continue to grow. Chinese companies increasingly are finding that “there are limits to growth in China,” he says. “They want to acquire external assets.”
In some cases, Chinese enterprises are acquiring the offshore assets of other Chinese investors. In June DBS advised HanKore Environment Tech Group, a Beijing-based, Singapore-listed water treatment provider, on a reverse takeover transaction that saw Beijing-based China Everbright International gain control of HanKore for $960 million. The deal gives China Everbright, a Hong Kong–listed, Chinese-government-controlled environmental firm, ownership of 11 water treatment plants across China. It also will help HanKore cut its net gearing from more than 70 percent to around 20 percent. “Some of these acquirers are harnessing the innovation of Chinese entrepreneurs that listed offshore,” Choe says. “In the HanKore case, it is a strong state-owned enterprise teaming up with a Chinese private enterprise listed outside China.”
One of DBS’s earliest deals involving Chinese offshore investment was its role in advising China’s largest bank, the Industrial and Commercial Bank of China, to make its first acquisition in Southeast Asia. ICBC bought Bank Halim of Indonesia for $22 million in 2007, becoming the first Chinese financial institution to complete an M&A transaction outside China.
Bank Halim was owned by a group of ethnic Chinese business executives, including Rachman Halim, whose family controlled the famous Gudang Garam clove cigarette manufacturing group. The owners lacked the financial muscle to expand the bank fast enough to keep up with competition. “So the owners wanted to team up with a big partner, especially at a time when the Indonesian government wanted consolidation,” Choe says.
Chinese companies and financial firms have made $51.1 billion worth of foreign acquisitions this year, as of August 26, compared with $68 billion for all of 2013. In addition to getting bigger, China Inc.’s appetite is getting more diverse. Buyers are targeting a wide range of assets, including minerals, energy and natural resources firms; agriculture and technology companies; and consumer brands such as PizzaExpress, the U.K.-based restaurant chain acquired in July by the Beijing-based private equity firm Hony Capital. The sophistication of Chinese buyers is growing, too.
“There has been a marked increase in dynamism and global awareness among Chinese professionals who execute these deals among our clients,” says Choe. “Increasingly, we see people who have lived abroad, were educated abroad and speak English and are at ease with other cultures and investment climates. This factor has become extremely pronounced, very visible and portends positively for China going forward. You can talk to them as you talk to a European or American executive. They understand ROE, internal rate of return, leverage ratios and the entire lingo of international finance.”
Follow Allen Cheng on Twitter at @acheng87.
