August 25,2009

China's Outbound Foreign Direct Investment - The Great Leap Outward

By CT Johnson

China 's emergence this year as a dominant player on the global M&A stage has deservedly excited comment throughout financial markets the world over. Taking advantage of the global economic downturn, the country's massive foreign currency holdings and an easing of government regulation, Chinese companies have made bold moves into overseas targets that, only a few years ago, were beyond their reach.

Not surprisingly, resources deals accounted for the lion's share of China 's outbound foreign direct investment activity, with nearly $15B of high profile deals announced since January 1, 2009. Of that $15B, deals in the oil sector accounted for $8.3B, coal $4.5B and iron other metals $2.1B. This sector also laid claim to the most significant failed and unresolved deals, including Aluminum Corp of China's $19.5B bid for 10% of Australian iron ore producer Rio Tinto (which collapsed on June 5 when Rio pulled abruptly called of negotiations) and CNPC/CNOOC's $17B joint bid for YPF, Repsol's Argentinian production unit (which is still being contested by India's Oil and Natural Gas Corporation).

The geography of this year's acquisitions is noteworthy. Sinopec's $7.2B purchase of Addax Petroleum made tiny Switzerland the number one recipient of Chinese investment. Australia , whom the Chinese government variously accuses of sponsoring terrorists and underhanded business dealings, was the second largest beneficiary of Chinese spending, having collected $5.4B in outbound investment. The US came third in tallying the high-profile deals, with $1.8B, due mostly to investments by CIC in investment bank Morgan Stanley and private equity fund Blackstone Group.

With four months left to go in the year, the list of Chinese outbound investments is likely to grow even further, revealing more about the ambitions of the Beijing government and China 's business community. The commercial wisdom of those acquisitions, and the investments made to date, remains to be seen. However, whether those investments turn out well or badly, they represent significant steps that China has taken beyond its borders and toward a closer integration with the global business community.

High Profile Outbound Foreign Direct Investment Deals Announced In 2009
Acquirer Target Date Country Industry Value Notes
Shenzhen Zhongjin Lingnan Nonfemet Perilya Mining 5 Feb '09 Australia Metals $29.8M China's third-largest zinc producer acquired a 50.1% stake in the Aussie zinc miner
Hunan Valin Iron & Steel Fortescue Metals Group 24 Feb '09 Australia Iron $438M FMG is Australia's third largest producer of iron ore
China Minmetals OZ Minerals 1 Apr '09 Australia Iron $1.21B Outright acquisition of most of the assets in Aussie iron ore producer
China Nonferrous Metal Mining Group Lynas Corp 30 Apr '09 Australia Metals $186M CNMMG bought a majority stake in the rare-earths metals producer
PetroChina Sinapore Petroleum Corporation 24 May '09 Singapore Oil $1.02B PetroChina bought a 45.5% stake in SPC from Keppel Corp
Haier Group Fisher & Paykel 26 May '09 New Zealand Appliances $29M Haier acquired a  20% stake in F&P
Sichuan Tengzhong Heavy Industrial Machinery Hummer 3 Jun '09 US Auto $100M (estimated) Little known Sichuan maker of heavy machinery announce plans to acquire Hummer brand
CIC Morgan Stanley 3 Jun '09 US Financial $1.2B CIC bought into share MS share offering, increasing stake to 9.9%
Wuhan Iron & Steel Consolidated Thompson 9 Jun '09 Canada Iron $240M Wuhan acquired access to iron ore as part of partnership
CIC Goodman Group 15 Jun '09 Australia Real Estate $585M CIC and Goodman formed a partnership, with CIC receiving an 8% equity stake for an A$200M debt facility plus A$500M of convertible debt
CIC Blackstone Group 19 Jun '09 US Financial $500M CIC to increase investment in Blackstone with $500M in hedge fund unit
CIC Diageo 21 Jul '09 UK Beverages $396M CIC bought 1.1% stake in UK beverages giant
Suning Appliance Laox 24 Jun '09 Japan Appliances $8.4M The largest shareholder, with a 27% stake in LAOX
Sinopec Group Addax Petroleum 24 Jun '09 Switzerland Oil $7.24B Outright acquisition of Swiss oil exploration company with important assets in Africa
CIC Teck 6 Jul '09 Canada Coal $1.5B CIC acquired a 17.2% stake in the Canadian coal and zinc miner
Sinochem Nufarm 30 Jul '09 Australia Chemicals undisclosed Reports of a deal have emerged, but no terms have been announced
Beijingwest Industries Delphi 8 Aug '09 US Auto undisclosed


Yanzhou Coal Mining Felix Resources 17 Aug '09 Australia Coal $2.95B Friendly takeover of Aussie miner of metallurgical coal
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