China’s open borders and push to stoke economy may revive dealmaking, advisers say

By Scott Murdoch, Yantoultra Ngui and Roxanne Liu

SYDNEY/SINGAPORE (Reuters) – China’s reopened borders and renewed focus on boosting its sagging economy have lifted the prospect of deals, with bankers beginning to show interest in mergers, acquisitions and fundraising with the world’s second-largest economy .

The prospect of a recovery in deals comes as Chinese policymakers try to restore confidence in private sector growth, which has been devastated by the COVID-19 pandemic and a sweeping regulatory crackdown.

Although consumer, retail and travel-related companies are expected to bounce back after a nearly three-year lockdown, consultants say sectors linked to strengthening China’s economic prospects will be at the center of dealmaking this year.

“We see strategic sectors, hardcore industrial technology, automation, semiconductor-related to be a focus for outbound activity,” said Mark Webster, partner and head of Singapore at BDA Partners, an Asia-focused investment banking advisor.

“Healthcare opportunities are proving to be of interest, both domestically and outbound, including in Southeast Asia,” he added. “Geographically, Indonesia in particular is attracting a lot of attention.”

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Australia has also appeared on China’s radar amid hopes for a diplomatic tow between the two countries. In one such deal, Tianqi Lithium and IGO joint venture will provide essential metals for lithium miners.

Outbound M&A with companies in China halved last year to the lowest point since 2006, Refinitiv data showed, dragging total Chinese company-led dealmaking to its lowest point in nine years.

Chinese corporate capital markets deals slipped 44% in the same period, according to Refinitiv data. This decline has crushed the fees earned by Wall Street banks and forced some of them to cut jobs, mainly those related to Chinese deals, in recent months.

“We’ve had a lot more requests for proposals from companies in the past two to three weeks,” said Li He, a capital markets partner at law firm Davis Polk, who traveled to Beijing to meet clients the day after China’s border crossing. was reopened in January. 8.

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“That’s not just because of travel, but people think that reopening is good for the economy, good for capital markets and good for deal execution,” he said.

The reopening coincided with a thaw in regulatory scrutiny that had stalled overseas Chinese IPOs over the past 18 months amid proposed rule changes, and the tech sector grappling with a raft of new regulations.

Until the border was reopened, travel from Hong Kong to mainland China was tightly restricted for about three years – a sharp change for advisers for whom weekly trips to China were common.

Open borders could lead to a flurry of deals with private equity funds later in 2023 as companies head to China to find buyers for their assets, according to Bagrin Angelov, head of China cross-border M&A at Chinese investment bank CICC.

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Chinese private equity activity was worth $24.1 billion in 2022, down from $57.8 billion a year earlier, Pitchbook data showed.

“Six months or a year before the deal, private equity firms would already meet with potential buyers to try to warm up interest and try to understand who would be interested,” said Beijing-based Angelov.

“For them, security is very important, and they really need to meet the buyer very early,” he continued. “Because of the opening, we expect an uptick in overseas private equity disposals to Chinese buyers.”

(Reporting by Scott Murdoch in Sydney, Yantoultra Ngui in Singapore and Roxanne Liu in Beijing. Editing by Gerry Doyle)

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