Abu Dhabi Investment Authority has been involved in a US$8.3bil deal for Dalian Wanda Group Co’s shopping mall management unit, along with another Abu Dhabi fund, Mubadala Investment Co. — Bloomberg
ABU DHABI: Deep-pocketed Middle Eastern investors are deploying a record amount of capital in China just as other global firms retreat.
Abu Dhabi Investment Authority (Adia) has been involved in a US$8.3bil deal for Dalian Wanda Group Co’s shopping mall management unit, along with another Abu Dhabi fund, Mubadala Investment Co.
Lenovo Group Ltd in May announced a sale of US$2bil worth of zero-coupon convertible bonds to Saudi Arabia’s sovereign wealth fund as part of a broader strategic pact with the kingdom.
Data compiled by Bloomberg showed that the volume of deals from Middle Eastern firms into Greater China has already reached a record US$9bil this year, and there’s still three months to go.
Dealmakers expect the pace to pick up in the coming quarters.
“Valuation of Chinese assets are the most attractive in the entire Asia-Pacific (Apac) region,” said Mayooran Elalingam, head of investment banking coverage and advisory in Apac at Deutsche Bank AG.
“Middle East investors are investing with a long-term timeframe and taking a view that markets will normalise over time.”
Middle Eastern wealth funds, which together control more than US$4 trillion of assets, have become key players in dealmaking, accounting for more than half the value of all deals done by global state-backed investors this year.
Firms including Adia, Saudi Arabia’s Public Investment Fund and Qatar Investment Authority (QIA) backed deals worth US$55bil in the first nine months of 2024, according to data from consultancy GlobalSWF.
Meanwhile, many others have reduced spending globally, particularly in China where they’re faced with increasing regulatory scrutiny, geopolitical tensions, market volatility and a slow economy.
Even China-focused investment funds have been redirecting their focus towards other regions, including South-East Asia, Japan, Australia and even Europe. Foreign investors pulled a record amount of money from China in the April to June period.
China’s central bank on Tuesday unveiled a broad package of monetary stimulus measures to revive the world’s second-largest economy, underscoring mounting alarm within Xi Jinping’s government over slowing growth and depressed investor confidence.
“Sovereign wealth funds have deep pockets and are hungry to find interesting businesses in Asia,” Elalingam said.
Given the limited competition, he added, Mid-East firms are able to acquire high-quality assets at significant discounts to other markets in the region and relative to historic multiples in China, especially in sectors such as health care and consumer.
Those funds are also building their know-how in industries where China has a global competitive advantage, including in high-end manufacturing, he said.
Yet the appetite from Middle Eastern investors doesn’t help make up for the overall loss of dealmaking activity in China.
Transactions targeting Chinese firms this year are down 12% from a year earlier to US$77bil, according to data compiled by Bloomberg.
“There is a lot of interest in China,” said Ho-Yin Lee, who helps run Asia technology and communications investment banking at Citigroup Inc.
“Middle Eastern investors are looking at companies that are market leaders in their respective sectors and willing to collaborate.”
Geopolitical tensions have been less of an issue for Middle Eastern funds seeking to invest in China, according to Samuel Kim, chairman of mergers and acquisitions in Apac at Deutsche Bank.
“We have seen a number of situations where Middle Eastern sovereign wealth funds have played an important role facilitating acquisitions,” said Kim, who’s also chief country officer for Deutsche Bank in South Korea.
Political ties are strengthening too. Chinese Premier Li Qiang said earlier this month that the country is willing to deepen cooperation with Saudi Arabia in oil and gas, petrochemicals and infrastructure.
Chinese enterprises have also been encouraged to invest in Saudi Arabia in areas including new energy, information and communication, and digital and green economies.
Government officials, investment bankers, lawyers and Asia-based consultants are spending more time meeting with Middle Eastern investors touring China and the rest of Apac looking for opportunities to expand.
For Hong Kong, which has been reliant on Chinese companies listing in the city and in the United States and Europe in terms of funding, greater interaction with the Middle East is positive as it helps diversify opportunities and sources of funding, said Louis Lau, a partner at KPMG’s capital markets advisory group in China.
Saudi Aramco has been busy in China. The world’s largest crude oil exporter is considering investing in more chemical plants in the country, on top of deals it has already clinched to secure long-term buyers for its crude.
Aramco has been eyeing a 10% stake in China’s Hengli Petrochemical Ltd and similar deals with two other Chinese companies. — Bloomberg
