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Chinese asset buyers unfazed by Brexit drama show strong interest in acquiring British companies

Xie Yu yu.xie@scmp.com

The UK is emerging as a preferred destination for Chinese outbound investment as they shun the US amid the US-China trade war and tougher regulatory scrutiny, say investment bankers.

According to Charles Maynard, founding partner of investment adviser BDA Partners, it is natural for the Chinese to look at the UK for M&A opportunities at this time given the state of relations between the world's two most powerful economies.

"Brexit or not, the UK is open for business," said the London-based financial adviser. "The pound is cheap. It is record cheap ... And if nothing else, we care about our financial markets."

The Committee on Foreign Investment in the United States has increased the scrutiny of investments and deals backed by Chinese companies, and to make matters worse, right-wing politicians like Steven Bannon have said that he would dedicate all his time to shutting Chinese companies out of US capital markets.

Charles Maynard, founding partner of BDA Partners, says the UK will welcome investments from China. Photo: Handout alt=Charles Maynard, founding partner of BDA Partners, says the UK will welcome investments from China. Photo: Handout

"The message [from Washington] is Chinese money is not welcome. And that has been heard by Chinese entrepreneurs," said Maynard.

Data from financial information provider Refinitiv showed that so far this year Chinese companies have announced 20 M&A deals in the US, down from 45 deals in the same period last year. In the same period, 12 deals were announced in the UK, down from 16 in 2018.

But bankers say Chinese outbound investment has been on the decline for the past two years, falling from US$200 billion in 2016 to US$70 billion last year. And it is set to fall this year too.

Alexander Weng, managing director for Asia-Pacific mergers and acquisitions at Morgan Stanley, said that as the China-US investment corridor has been more or less shut down for the past year, the China-Europe corridor has seen more activity.

Data from financial markets platform Dealogic showed that there were 49 deals in China involving European companies last year, up from 32 per cent in 2017, while their value surged 856 per cent to US$9.94 billion from US$1.04 billion in 2017.

China has become the happy hunting ground for European asset shoppers as trade war drags on, saps US acquisitions

Over the past few weeks quite a few deals in the UK have been announced by Chinese buyers in sectors ranging from tourism to technology.

On Wednesday, Beijing-based Cindat Capital Management teamed up with Oaktree Capital Management to acquire 30 South Colonnade, an office building on London's Canary Wharf from China's financially embattled HNA Group.

HNA bought the property in 2015 for around £215 million (US$ million). A source from Cindat said Cindat will be paying much lower than what HNA had paid.

In early June, the Chinese conglomerate Fosun approached Thomas Cook, the world's oldest tour operator, to buy its tour business, hoping to increase its stake in the British travel company from the current 18 per cent. The talks however are at an early stage, according to several media reports.

In late May, Chinese tech giant Tencent Holdings led a US$24 million investment into a Cambridge-based AI company, Prowler.io.

And more are in the works.

Anthony Siu, managing director at BDA Partners, said on Thursday that one of its clients, a private Chinese company, is poised to bid for a UK telecom equipment manufacturer as "there is a very strong strategic rationale for the deal".

He added that the Chinese buyer was considering merging the factory currently operated by the UK firm in the mainland, and use its UK presence to access the wider European market.

Additional reporting by Peggy Sito and Daryl Choo

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.