China’s big buying spree is taking greater interest in potential mergers and acquisitions in Australia.
So far in 2016, Chinese companies have announced acquisitions of corporate assets around the world worth $US117 billion ($161.95bn), says investment bank Credit Suisse.
Of that, $US2.5bn has been spent on Australian assets. But Credit Suisse expects that figure to increase.
Potential Australian targets include Primary Health Care, Nufarm, Syrah Resources and Treasury Wine Estates.
“China is delivering the biggest cross-border acquisition spree in Asia’s history and provides another reason to expect more mergers and acquisitions in Australia,” Credit Suisse analysts led by Hasan Tevfik said in a research note.
The analysts said Chinese investment had helped boost Australia’s housing sector and now looked like doing the same for merger and acquisitions.
“We believe there will be more outbound mergers and acquisitions heading towards Australia,” they said.
Chinese companies were looking towards Australia for several reasons.
The Chinese government was encouraging merger and acquisition activity, and the Australian government had relaxed investment restrictions.
Furthermore, Chinese companies could fairly easily access funding and, at the moment, could be losing confidence in China’s economy.
Chinese companies may also be anticipating future weakness in the Chinese currency, the renminbi.
Credit Suisse said the China-Australia Free Trade Agreement (CHAFTA), which came into force in December 2015, had removed many restrictions on acquisitions by China Inc in Australia.
Approval is no longer required from Australia’s Foreign Investment Review Board (FIRB) for investments under $1.1bn in non-sensitive sectors.
However, the FIRB still screens proposed acquisitions of land — no matter how large — by Chinese state-owned enterprises.
The Credit Suisse analysts said China Inc was especially interested in acquiring expertise, with half of the announced global acquisitions providing potential gains in intellectual property.
The next biggest group of global targets — and the biggest in Australia — were companies exposed to commodities and agriculture. The third biggest was “hard assets” such as infrastructure and property.
The fourth group of targets were companies that provided a brand opportunity for China Inc, or a unique asset, such as five-star hotels, a high-end lace manufacturer in France and a Czech brewer. Potential targets in Australia include agricultural chemicals and seeds company Nufarm.
Credit Suisse said 20 per cent of Nufarm’s revenue is based on a high intellectual property content, and five per cent of shares are held by a Chinese investor.
Medical centres and pathology provider Primary Health Care is also considered a potential target, with China’s Jangho Group already holding a 14 per cent stake.
Wine supplier Treasury Wine Estates could be a target given that it has strong brands and is growing fast in China.