Enter The Dragon: Why China is snapping up British assets

 
Shruti Tripathi Chopra
Follow Shruti
CHINA-LIFESTYLE-LUNAR-NEW YEAR
Chinese firms bought up British assets worth $11.3bn (£9bn) last year (Source: Getty)

What do Heathrow, Thames Water, black cabs, Harvey Nichols and Rio Tinto have in common? They’re all part-owned by Chinese companies.

“Britain holds a number of attractions for Chinese investors,” says Simon Bevan, head of the China Britain services group at Grant Thornton UK. “As a country, our language, business culture, rule of law and fiscal regime are viewed positively, and it is seen as a key market in which Chinese companies can achieve growth.”

Chinese firms bought up British assets worth $11.3bn (£9bn) last year and have spent nearly $50bn in the last decade on acquisitions into the country.

Bevan adds: “UK real estate and infrastructure assets have attracted considerable investment and are generating huge interest from both state and private Chinese investors.

“Consumer brands, such as retailers and food and beverage, technology, media and telecommunications, and fintech are other areas which are very much on the radar for China, with the current weakness in sterling continuing to make these assets even more affordable and attractive to investors.”

Prime Minister Theresa May’s relationship with China got off to a slightly rocky start last year when she decided to review the controversial £18bn Hinkley Point C nuclear project due to security concerns over Chinese involvement.

However, the government eventually approved the project in September after revising some conditions; it also promised a new national interest test for takeovers originating from overseas.

Come November, and May was calling for a new “golden era” in Britain’s relations with China. She is due to visit the Asian powerhouse soon.

The wheels for more trading opportunities between the two countries are already in motion – literally. Earlier this month, the first freight train from China travelled nearly 7,500 miles over 18 days to arrive in Britain with containers stuffed with goods.

Read more: Why Russia beat Saudi Arabia as China’s No.1 oil supplier

“The fact remains the UK needs inward investment, particularly since the vote to leave the EU, and the new government’s plans to boost infrastructure and transport links, particularly in the north of England, won’t be achieved by taxpayer money alone,” says Michael Hewson, chief market analyst at CMC Markets.

“The recent fall in the pound has made UK assets cheaper and more attractive and as long as national security interests are upheld the UK government will probably continue to encourage the private investment of the type the Chinese offer,” he added.

10 biggest Chinese acquisitions into the UK from 2006-2016

Rio Tinto (12 per cent) - $14.2bn

Barclays (2.64 per cent) - $3bn

Global Switch (49 per cent) - $2.9bn

BP ( one per cent) - $2bn

Skyscanner - $1.7bn

Weetabix Ltd (60 per cent) - $1.55bn

Talisman Energy UK (49 per cent) - $1.5bn

Property Portfolio (Chiswick Park) - $1.21bn

Property Portfolio (10 Upper Bank Street skyscraper in Canary Wharf) - $1.19bn

Bio Products Laboratory - $1.19bn

And what of the Chinese? China’s ambitions for big ticket acquisitions may take a knock this year. In a recent report, S&P suggested “greater government scrutiny” and the drop in renminbi last year is likely hit Chinese spending on M&A in 2017.

“Over the past several months, the Chinese government has implemented steps to try to control depreciation of the Chinese renminbi, and maintain control over the leverage of state-owned enterprises (SOEs).

“Given that outbound acquisitions have principally been credit-fuelled, this will have the secondary effect of dampening the appetite for SOEs to make big-ticket acquisitions, and make overseas acquisitions more difficult to complete,” S&P said.

Let’s hope the Chinese New Year, celebrated over the weekend, will bring luck for the Chinese M&A sector.

Some deals are still getting done. Last week, Chinese stadium giant Lander announced it had bought a stake in Southampton football club for an undisclosed sum.

Here are British assets you never knew were Chinese-owned

Rio Tinto

One of the world’s biggest aluminium producers, Aluminim Corp of China or Chinalco, snapped up a 12 per cent stake in London-listed Rio Tinto in a $14.2bn deal in 2008. It is the biggest acquisition China has made into the UK over the last decade.

Skyscanner

The travel firm was sold to Ctrip, China’s largest online travel business, in November in a deal valuing the UK site at around $1.74bn. Gareth Williams, co-founder and chief executive of Skyscanner, said: “Ctrip is the clear market leader in China and a company we can learn a huge amount from.”

Pizza Express

The British restaurant chain was gobbled up by Beijing-based Hony Capital in a £900m deal in 2014. The Chinese firm struck the deal with the aim of ramping up the brand’s presence in the Asian markets.

House of Fraser

In a £480m deal, UK department store chain House of Fraser sold a majority stake in its business to Chinese conglomerate Sanpower. “This acquisition is a landmark transaction for a Chinese listed company,” said Yuan Yafei, chairman of Sanpower Group.

Hamleys

Britain’s most iconic toy store Hamleys got a new owner in 2015 when Chinese footwear seller C Banner International bid for the then 255-year-old brand. The £100m deal was made to help C Banner diversify into other businesses.

Thomas Cook

To crack Europe’s travel sector, Chinese investor Fosun bought a five per cent stake in Thomas Cook for £92m in 2015.

National Grid

In December, National Grid struck a deal to sell a 61 per cent stake in its UK gas distribution business to a consortium backed by China Investment Corporation, and Aussie financiers Macquarie.

Despite some macroeconomic headwinds, analysts and sinophiles expect more mega-deals to come.

Related articles