Japan Inc could claim edge in overseas deals as China faces restraints

Wed Dec 28, 2016 5:45am EST
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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: Quote) this month beat rivals, including China Resources (0291.HK: Quote), to buy Anheuser-Busch InBev's (ABI.BR: Quote) eastern European beer brands for 7.3 billion euros ($7.6 billion).

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."


FILE PHOTO: Asahi Super Dry beer cans are displayed at the Asahi Group Holdings headquarters in Tokyo, Japan, May 17, 2016. REUTERS/Toru Hanai/File Photo