Japan Inc could claim
edge in overseas deals as China faces restraints
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[December 28, 2016]
By Thomas Wilson and Saeed Azhar
TOKYO/SINGAPORE
(Reuters) - Japan Inc may become a more important force in dealmaking
next year as its cashed-up companies seek to buy growth prospects
elsewhere in the world and as Beijing's crackdown on capital outflows
prevents some Chinese companies from making foreign acquisitions,
bankers and lawyers said.
Facing tepid prospects at home after decades of stagnation amid a
shrinking population, Japanese companies had spent $93 billion overseas
this year, up to Dec. 19, little changed from a record $96 billion in
all of 2015, but up from just $51 billion in 2013, Thomson Reuters data
shows. Chinese companies have spent $217 billion so far in 2016.
With Japanese companies hoarding a record $3.2 trillion in cash,
according to government data, outbound acquisitions are expected to
maintain a fast pace next year, the bank and law firm sources said.
And while the recent weakening of the yen against the dollar will make
American acquisitions more expensive in yen terms, it does mean that
Japanese companies will tend to be earning more of the Japanese currency
from overseas assets.
Among recent deals, Asahi Group Holdings <2502.T> this month beat
rivals, including China Resources <0291.HK>, to buy Anheuser-Busch
InBev's <ABI.BR> eastern European beer brands for 7.3 billion euros
($7.6 billion).
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China's State Administration of Foreign Exchange is vetting transfers
abroad worth $5 million or more, and in particular is increasing
scrutiny of major outbound deals to curb capital outflows that are
hurting the value of the yuan, sources have told Reuters.
"Japanese buyers have a low cost of capital, strong cash balances and a
strong appetite to diversify out of their home market," said Mayooran
Elalingam, Deutsche Bank's head of Asia-Pacific M&A in Hong Kong. "At
the same time, they do not have the regulatory or political constraints
of a Chinese purchaser."
BREWERS LOOKING FOR DEALS
Japan's cashed-up insurers are likely to step up their aggressive hunt
for overseas businesses, the bankers said. For example, Meiji Yasuda,
Japan's third-largest private sector insurer by assets, is attracted to
Australia and New Zealand Banking Group's life insurance and wealth
businesses, said a source close to the unlisted Tokyo-based company.
Japanese beverage makers could buy abroad, an M&A banker at a European
investment bank told Reuters, citing Suntory Holdings Ltd and Kirin
Group Holdings Ltd. Kirin and Asahi Group Holdings are among investors
who have expressed an interest in buying stakes in Saigon Beer Alcohol
Beverage Corp, or Sabeco, Vietnam's biggest brewer, and its smaller
rival Habeco.
Kirin declined to comment. Suntory said it was not considering any
specific deals and was instead focused on integrating its 2014 purchase
of Beam, the maker of Jim Beam bourbon whiskey among other alcoholic
drinks.
An Asahi spokesman said it was "looking with interest" at Sabeco and
Habeco. Sabeco declined to comment and Habeco did not respond to a
Reuters request for comment.
The Japan-China rivalry may also play out in the natural resources
sector next year, said Alexis Papasolomontos, an M&A partner at law firm
Herbert Smith Freehills. The sector is traditionally favored by China
but of growing interest to Japan.
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![](../images/122816pics/busine1.jpg)
Asahi Super Dry beer cans are displayed at the Asahi Group Holdings
headquarters in Tokyo, Japan, May 17, 2016. REUTERS/Toru Hanai/File
Photo
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Japanese buyers spent $9 billion in the energy and materials sectors this year,
up from $5 billion last year, Thomson Reuters data shows. China, focused on
acquiring energy and food assets, splurged a record $87 billion in that sector
this year versus $16 billion last year.
Still, Japan's record with overseas acquisitions has been spotty. Toshiba Corp
6502.T] said on Tuesday it was considering booking a goodwill impairment loss of
several hundreds of billion yen on a U.S. nuclear power acquisition made by its
Westinghouse division, sending its stock plunging.
Japan's Nomura Holdings Inc, which acquired Lehman Brothers' Asian and European
operations following the collapse of the U.S. investment bank, announced a
painful restructuring earlier this year after losing some $3 billion overseas in
six years.
Century Tokyo Leasing was among the companies that lost out to a unit of China's
HNA Group in a battle to buy a CIT plane leasing unit, according to people
familiar with the matter. In manufacturing, the sale of General Electric Co's <GE.N>
appliance unit generated interest from Japanese buyers but they didn't compete
seriously against a subsidiary of Shanghai-based Qingdao Haier which won the
auction, one of the people told Reuters.
"We expect to continue to see a lot of activities in every sector," said
Yoshihiko Yano, head of Japan M&A at Goldman Sachs. "Given the decreasing
population and aging society, outbound M&A for growth outside Japan is
inevitable for Japanese companies."
TRUMP EFFECT
Japanese companies have been drawn to the U.S. market because its economic
growth has been generally higher than Japan's, and as the American population
rises. U.S. President-elect Donald Trump's pledges to cut business taxes, spend
on infrastructure and slash business regulation means the appeal of the U.S.
market is likely to increase.
"America's appeal won't change for Japanese firms," said Shinsuke Tsunoda,
global head of M&A at Nomura Securities Co.
Underscoring Japan Inc's faith in the U.S. under Trump, SoftBank Group Corp
<9984.T> head Masayoshi Son this month met Trump and pledged to invest $50
billion in U.S. startup companies.
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Japanese companies may also gain an edge over their Chinese rivals because of
Trump's anti-China rhetoric, lawyers said.
U.S.-China relations are likely to go through a period of increased tensions, at
least during the early months of his presidency, after Trump threatened to
impose punitive tariffs on Chinese imports into the U.S. and label China a
currency manipulator.
(Reporting by Thomas Wilson and Saeed Azhar; Additional reporting by Emi Emoto
in Tokyo, Sumeet Chatterjee in Hong Kong, Mai Nguyen in Hanoi and Gaurav Dogra
in Bangalore; Editing by Martin Howell)
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