Significant economic factors and various government policies have been driving financing opportunities, financing structures and the types of deals that have recently closed and are currently being conducted throughout the Asia-Pacific region.
To help Taiwanese businesses and financial institutions make strategic growth decisions, here are our observations on some key financing trends in this region.
Chinese outbound direct investments
Despite significant tightening of mainland China's outbound direct investment (ODI) and foreign exchange control policies starting in late 2016, Chinese ODI remains the largest source of financing opportunities in North Asia. Particular recent highlights include ODI by non-state-owned Chinese companies in TMT, manufacturing and retail sectors, among others. We also have been observing a marked increase in Chinese ODI into Europe and other parts of Asia, while US ODI has slowed.
At the same time, there appears to be a growing trend of privatization of Hong Kong– and Singapore-listed companies, including several recent deals in the logistics sector, by Chinese strategic investors and international private equity (PE) firms.
Given China's tightening of its ODI policy and foreign exchange control policies, financings for ODIs seem to be increasingly sourced offshore from international banks, Hong Kong affiliates of Chinese financial institutions and alternative capital providers. In particular, we have noted a significant increase in Hong Kong–based Chinese private capital providers' participation in ODI financings.
Chinese inbound direct investments
Although China has relaxed its inbound foreign direct investment (FDI) policy, we have yet to observe a significant increase in offshore financings for FDIs. Where FDI-related financings are required, we generally are seeing trade financings such as receivables-backed financings and offshore corporate refinancings, occasionally secured by commercial real estate in China.
In addition, an increasing number of direct lending transactions with Chinese entities (as opposed to offshore holding company financings) have recently taken place, with a steady pipeline of FDI financings in the clean energy, TMT and financial institutions sectors.
In 2016, Chinese companies spent US$140 billion on global acquisitions, almost double the record set in 2015.
China's rise in global M&A, White & Case LLP
PE sponsors have been increasingly active throughout Asia.
Unlike a decade ago, when PE sponsors relied on bulge bracket investment banks to lead their financing transactions, many PE houses have now formed their own relationships with regional banks in Asia. In particular, Chinese financial institutions have been providing a significant amount of the leverage required in PE-sponsored deals, as well as traditional LBO products, margin financing, dividend recaps and other forms of liquidity. Their coverage has extended beyond China or developed markets and into Southeast Asian countries.
"One Belt, One Road"
China's One Belt One Road initiative (which includes its Maritime Silk Road, Silk Road Economic Belt and various other components) has spurred an increase in infrastructure and power projects in South and Southeast Asia that require financing. Through these and other initiatives, China likely will be critical in shaping the volume, value and character of global investment activity in the coming decade. As expected, Chinese engineering, procurement and construction (EPC) contractors and exporters have been the pathfinders in these new emerging markets.
These activities have also had an indirect impact generally on the development of the financial and other economic sectors in emerging markets across South and Southeast Asia. This, in turn, has spurred an increased focus by Taiwanese banks on developing their Southeast Asian business, focusing on project, trade and general corporate financings.