2012: The Year of China Resource M&A? 2012：中国企业的资源并购年？

By newsdoug on December 12, 2011

China to power global resource M&A in 2012 The latest buzz surrounding an overseas China energy deal, in this case involving Sinopec’s (HKEx: 386; NYSE: SNP) bid for a South American asset, casts a spotlight on a range of market factors that could come together to make 2012 a big year for overseas resource M&A by Chinese firms. According to foreign media reports, Sinopec, China’s largest refiner which would also like to become a major crude oil producer, is the leading candidate to buy some of Brazil’s most promising offshore oil assets from Britain’s BG Group (London: BG) (English article) This deal would be the latest in a recent string of overseas M&A deals by China’s energy majors, with oil companies CNOOC (HKEx: 883; NYSE: CEO) and Sinopec, as well as coal miners Shenhua (HKEx: 1088; Shanghai: 601088) and Yanzhou Coal (Shanghai: 600188; HKEx: 1171; NYSE: YZC), all bidding for global assets or announcing big deals in the last 6 months. This latest Sinopec deal throws a spotlight on why China could well become the dominant force in bidding for global M&A natural resource assets next year for a number of reasons. From an experience standpoint, China’s resource majors are becoming much better at such M&A following their latest successful acquisitions, after many of their earlier deals failed due to lack of experience. From a financing standpoint, all the resource firms are also in good position as Beijing has stated on many occasions it wants to make the country less dependent on foreign suppliers for key resources like oil, coal and iron ore, meaning Beijing is likely to approve and even provide low-cost financing for these kinds of deals. Lastly there’s the ongoing European debt crisis, which is being felt to a lesser extent in the US, and will restrict the ability of big Western resource companies to assemble the financing necessary for such deals. Since many emerging market players also depend on these credit markets to raise financing for big deals, they will also be affected by the pinch, unlike Chinese firms whose financing usually comes from cash-rich Chinese banks that lend based on Beijing’s latest policy directives. The risk for the Chinese companies, of course, is that they are likely to overpay for these assets in their effort to execute Beijing’s wishes, which could hurt the bottom lines of their listed units. But considering the weak position of many rival bidders, the Chinese firms may actually be able to pick up some of these assets at reasonable prices.

Bottom line: Front-runner status of Sinopec in the race to buy a prime Brazilian oil asset spotlights weakness in global rivals that will make China the leading buyer of global resource assets in 2012.

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