China M&A activity slowed to the weakest level since 2014 in H1, with Belt & Road deals particularly impacted amid the continuing U.S.-Sino trade war. Refinitiv’s Elaine Tan, Senior Analyst, Deals Intelligence, examines China’s M&A, debt and equity capital markets.
- China M&A activity in H1 fell 38 percent to just under US$200 billion, with outbound deals down 73 percent to a seven-year low.
- Companies raised $66 billion in equity capital, a decline of 14 percent, while proceeds from IPOs amounted to $19.5 billion, a drop of nearly a third.
- Chinese government bonds dominated the debt capital market in the period, with $394 million raised, representing 46 percent of the Chinese debt markets.
Chinese overseas M&A activity continued to revert to the ‘old normal’ in the first half of 2019, following a ‘super peak’ in 2016, as growing trade tensions precipitate a further decoupling of the U.S. from the world’s second largest economy.
Total China M&A fell 38 percent in the period, at just shy of US$200 billion, representing the slowest period since 2014.
China M&A in numbers
Domestic deals were subdued while the Chinese outbound story continued its freefall, down 73 percent year-on-year to a seven-year low. Interest in Belt & Road nations suffered most, with a 90 percent fall, to represent just one-fifth of Chinese overseas acquisitions.
Meanwhile, overseas interest in Chinese companies fell 42 percent compared to the same period last year, to hit $19 billion. As a result, advisory fees for completed deals ended the half at $433 million, the lowest since the first half of 2015.
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Chinese companies raised $66 billion in equity capital in the period, a decline of 14 percent, while proceeds from IPOs amounted to $19.5 billion, a drop of nearly a third.
The one bright spot was in convertible offerings, which enjoyed a record first half, raising $31 billion, an increase of 110 percent, year-on-year. CITIC leads the ranking in Chinese ECM underwriting, with an 11 percent share, followed by Goldman Sachs at nine percent.
Debt capital markets
Debt capital markets (DCM) were a different story, driven by sovereign and corporate debt issuance.
Primary bond offerings increased by almost half (48 percent) to $853 million, the highest level since 2016. Corporate bonds reached all-time highs in the period, with investment grade up 37 percent to raise $212 million and high yield soaring 172 percent, albeit from a low base, to reach $20 million.
However, it was Chinese government bonds that dominated DCM in the period, with $394 million raised, representing 46 percent of the Chinese debt markets, and also making China the most active government issuer, representing more than one-third of sovereign debt issuance globally.
Chinese banks command much of the China bonds underwriting market. Bank of China takes a nine percent share, with ICBC and China Construction Bank in second and third place respectively.
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Overall, investment banking fees in China during the period increased by a relatively modest 7.5 percent, to $6.7 billion, propped up by a 48 percent surge in DCM fees, which reached $4.1 billion, the highest first half period ever since records began in 2000.
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