Bloomberg | Financial Times | June 23, 2017
An investigation illustrates the risks for targets of takeover bids.
A regulatory probe announced by China into the “systemic risk” of some of its biggest overseas acquirers is both welcome and troubling. Welcome because Beijing is raising a red flag over corporations long known for high leverage and opaque operations. Troubling because it creates big uncertainties, both for the future of Chinese outbound investment and for the several notable US and European brands snapped up in recent years.
The probe was ordered by the China Banking Regulatory Commission, a powerful regulator that is leading a high-priority campaign to mitigate risk in the financial system. Thus the investigation into whether high-interest financial products and overseas loans were used to fund buying sprees derives from a crucial domestic initiative. The companies included so far in what is being called a “fact-checking” initiative are Dalian Wanda, the property-to-entertainment company, Fosun International, the consumer group, HNA, a diversified conglomerate, and Anbang, an unlisted insurer. Together, these four have bought $56bn-worth of companies in the past five years.
It is too early to judge whether any wrongdoing will be found. On Friday, large state-owned Chinese banks declared they had no intention of cutting off credit to the companies and denied they had sold their bonds. Nevertheless, the public announcement of the probe and the established links of some companies to the vast netherworld of shadow finance suggest the investigations may be substantive.
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