Asian tycoons are looking to snap up assets pummelled by the deadly coronavirus at bargain prices, but they are also facing hurdles as more governments seek to deter foreign takeovers of local firms.
Over the past three months, top executives of companies based in mainland China, Hong Kong and Singapore have told investors that they are looking for acquisitions.
They include Victor Li, who took over Hong Kong’s CK group from his father Li Ka-shing two years ago, and billionaire Guo Guangchang, the founder of the acquisitive Chinese conglomerate, Fosun Group.
Major stock indexes in the US, Europe and Asia Pacific all plunged about 20% in the first quarter in their worst rout since the 2008 financial crisis, making retail chains to hotels and property developers attractive to suitors.
Cash-rich conglomerates like Li’s CK group are in a position to invest when others struggle as they are built to defend against the bad times, said Jonathan Galligan, group deputy head of research at CLSA Ltd.
“This is a tremendous opportunity for any company with cash,” Galligan said. “If you look at what’s happened in the global market, right now cash is king.”
The junior Li, 55, now chairman of CK Hutchison Holdings Ltd, CK Asset Holdings Ltd and CK Infrastructure Holdings Ltd, told analysts on March 19 that the group’s cash flow and balance sheet are strong and the impact of the virus offers “opportunities to look at new acquisitions.” He didn’t elaborate.
The market rout has come as Li’s biggest test since his father passed on the baton in May 2018. The now retired senior Li, 91, came to Hong Kong as a refugee but went on to transform a plastic flower business into a ports-to-telecommunications empire spanning the world.
CK Hutchison, the main flagship whose stock has tumbled 22% this year, said it had HK$145bn ($18.7bn) of cash and liquid investments as of December.
That is 3.6 times its short-term debt and 1.7 times its debt maturing over 2020 and 2021, according to S&P Global Ratings.
The group spent $5.5bn last year acquiring assets including British pub operator Greene King Plc, following about $15.2bn of purchases the previous year, according to data compiled by Bloomberg.
The chaos triggered by the disease is also posing another challenge for prospective buyers.
Governments are preemptively trying to ward off predatory buying, with policy makers from Australia to Spain, Italy and Germany introducing or considering stricter rules to help shield strategically important domestic companies.
The regulatory barriers may make some acquisitions harder, far from the days when Chinese conglomerates such as HNA Group Co loaded up on debt and paid top dollar for assets from US technology firms to European aviation businesses.
“For companies like Li’s, they depend very much on acquisitions to grow, and that could be a big challenge in the long term,” said Jackie Yan, an assistant professor in management and strategy at the University of Hong Kong.
Li, however, is no stranger to rejections by overseas regulators.
In 2018, Australia rejected CK’s bid to buy APA Group, an operator of gas pipelines, for A$13bn ($8bn), on national security concerns.
Had it been successful, that would’ve been CK’s biggest overseas purchase.
A representative for the CK group didn’t respond to a request for comments. In its wake, the pandemic is likely to leave behind many ruined businesses after billions of people spent days in lockdowns and curtailed spending. In the US, 50,000 retail stores have shut in just over a week.
More than half of UK firms have just three months’ cash in reserve or less, according to a survey by the British Chambers of Commerce.
The International Finance Corp said last week that it had received 315 requests for financing from companies and small- and medium-sized enterprises in 70 countries.
The MSCI Europe Consumer Discretionary Index, comprising stocks such as Adidas AG, Daimler AG and LVMH Moet Hennessy Louis Vuitton SE, has declined 27% this year.
Even a world index that represents telecommunications, utilities and energy companies – sectors that tend to demonstrate inelastic demand patterns, stable, predictable returns – has dropped 15%. Value Investments Fosun’s founder Guo said Thursday the group will use its global resources to “find the best opportunities in this round of crisis.” Fosun will focus on its existing markets such as Europe, US, India, Brazil and China for further investments, and is looking for value investments that will enhance its health care, tourism, retail and finance businesses, he said in an e-mail response to queries from Bloomberg News.
Fosun International Ltd had 93.6bn yuan ($13.2bn) in cash and equivalents last year, compared with 82.7bn yuan of short-term debt, according to data compiled by Bloomberg.
The group is into health care, insurance and hospitality.
Singapore’s biggest developer, CapitaLand Ltd, which bought Arlington Business Park in the UK in February, is seeking similar “counter cyclical” opportunities amid the virus downturn, its Chief Financial Officer Andrew Limtold analysts the same month.
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