Bangkok--6 Oct--Fitch Ratings
In a report published today, Fitch Ratings says that it anticipates an increasing level of cross-border M&A activity by Asia-Pacific corporates over the next few years, notably in the energy and commodities sectors, as China - in particular - seeks to secure the natural resources necessary to support its continuing strong growth.
"Securing sufficient supplies of energy and raw materials is one of the biggest challenges facing high-growth economies and their leading industrial companies," said Tony Stringer, Managing Director and Head of Fitch's Asia-Pacific Corporates Team. A recent flow of transactions, mostly involving Chinese companies in the mining and metals sectors acquiring Australian resource-based assets, highlights this growing trend. "China's status as the world's largest importer of iron ore to feed its voracious steel sector is a good example of the type of dynamic that will drive M&A in the region," said Mr. Stringer. "In order to sustain the double-digit growth rates being targeted by the Chinese government, security of supply of raw materials is paramount and becomes a political, as well as a corporate priority," he added.
This expectation of increasing cross-border M&A may be tempered by the natural risk aversion of senior corporate executives, who may have little financial or career motivation to pursue deals. As was seen in the aborted Chinalco tie-up with Rio Tinto Limited ('BBB+') earlier this year, the viability of a transaction can be impacted by political concerns; Fitch anticipates that future proposed M&A transactions in Asia will continue to be affected by such considerations, particularly given the ongoing heavy involvement of sovereign governments in the ownership of large Asian corporate entities.
While the nature of the financing of such transactions will clearly influence the effect on the acquiring company's credit quality, Fitch believes that the business risk benefits derived from supply chain integration could in some cases effectively mitigate the negative impact of more aggressive capital structures in the event that acquisitions are debt funded. The agency would assess this dynamic on a case-by-case basis.
The special report "Asia-Pacific Corporates in 2012" is available on the agency's website, www.fitchratings.com.
Contacts: Tony Stringer, Hong Kong, Tel: +852 2263 9559.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935, Email: [email protected]; Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: [email protected].