Q2 2021 Chinese Inbound Investment: M&A and Equity Investments - China Briefing

Investment

Q2 2021 Chinese Inbound Investment: M&A and Equity Investments – China Briefing

Published

3 years ago

July 26, 2021

The period April-June 2021 saw an impressive array of investments into China, in a variety of different sectors. Despite political differences, the United States led the way closely followed by Asia and then Europe.

Q2 aggregate amounts were led by real estate, and logistics acquisitions and investments, suggesting that corporate MNC’s are buying into China’s Belt and Road Initiative projects while politicians continue to discredit it. Joint ventures (JV) and minority investments took place in multiple sectors from several Asian countries.

JVs/minority inbound investments were made from several European countries led by German and Scandinavian businesses. The UK saw a handful of small investments/JVs as well as one major exit. A notable next generation investment was made by Germany’s Volocopter, looking to bring flying taxis to China.

The second quarter of 2021 saw China inbound investments/pledges reach US$13.9 billion, down 2.1 percent from US$14.2 billion in Q1 2021, but still well above both Q3 and Q4 2020 levels. These investments were a mixture of controlling inbound acquisitions, minority stakes, JVs, and new plants/operations.

This quarter was led by acquisitions of controlling stakes across financial services, banks, investment banks, securities firms, asset and wealth managers, insurers, real estate, and logistics. We set out this activity by region below.

North America led with US$6.8 billion. Two large acquisitions by Blackstone, one of a Beijing-based commercial developer and one of a leading Chinese data management group, accounted for US$4.3 billion. Canadian-based Brookfield acquired a set of five mainland shopping malls for US$1.4 billion. There was a furry of investments/announcements by leading US financial services groups including JP Morgan – seeking to acquire the remaining 29 percent of its securities joint venture (estimate of US$40-50 million). This follows JPM’s Q1 acquisition of a 10 percent stake in China Merchants Bank, a leader in Chinese wealth management for US$410 million.

Morgan Stanley is interested in acquiring stakes in their Chinese securities and mutual funds JVs (approx. US$150 million)

Goldman Sachs launched its Chinese wealth management JV with ICBC wealth management. Goldman will control 51 percent.

Blackrock announced that it had received its license for a majority owned (50.1 ercent) wealth management JV with CCB and Temasek (Singapore). Blackrock also became the first global asset manager to start a wholly owned onshore mutual funds business.

There were also industrial JVs in lithium batteries, chemicals and gasification, venture capital (VC) and/or private equity (PE) investments into Chinese healthcare, with a focus on biopharma and biotech, into diary and into a newly launched industrial/PE fund for the Chinese beauty market. There were also a few smaller RE acquisitions as well. The quarter ended with Warburg Pincus announcing a JV with China’s Golden Union Group, to acquire under-utilized properties in Shanghai and Beijing and convert them into use, including serviced apartments, creative offices, or mixed-use commercial projects.

Asia Q2 announced deals with disclosed values totaling US$6.1 billion.

Not surprisingly, Hong Kong and Singapore ranked #1 and #2, respectively, by country.

The largest Asian inbound investment was AIA’s acquisition of a 24.99 percent equity stake in China Post Life for US$1.8 billion. Hong Kong also saw a US$500+ million acquisition of a Chinese shopping mall by a REIT and an inbound mainland Chinese hospital acquisition. Singapore saw three real estate/REIT transactions, one of which represented the successful IPO of GLP’s logistics REIT (a landmark China REIT transaction), the launch of DBS’ majority-controlled mainland securities JV, and a private placement by GIC into a leading tech platform.

This quarter also saw inbound JVs/partnerships involving many other Asian countries; Japan (Daiwa securities JV and an EV batteries JV), Korea (biopharma VC investment led by Mirae and a JV in lithium-ion battery recycling), Mongolia (metallurgical coal JV), Thailand (hospitality/hotels entry), and Australia, a US$1.4 billion lithium strategic partnership.

MENA China (Guangzhou) and Israel launched a second Sino-Israel biotech Fund, managed by prominent Israeli professionals, and is to be focused on Israeli and EU biotech companies in phase II/III clinical trials.

Europe (excluding the UK) saw numerous JVs/investments into China, however, very few of these disclosed any value. The aggregate disclosed values for FDI into China amounted to US$750 million.

Germany invested in two China JVs, focused on electric batteries as well as one on fuel cells – all involving leading brands from both countries. There was a JV launched to focus on monorail components, another to bring German flying taxis (Volocopter) into China and one to fund a Series C of a Chinese drone maker. Perhaps the most pressing Q2 German/China JV was the one between Fosun Pharma and BioNTech, which is designed to produce up to 1 billion of additional vaccine doses per year to mainland China, which needs this additional domestic vaccine capacity. (BioNTech also announced that it would be launching new regional vaccine production facility in Singapore).

BASF’s new engineering plastics compounding plant at the BASF Zhanjiang Verbund site (US$10 billion) is also on track with the first production plant to come commence operations at the site in 2022. German inbound VC investment volume was much lower in Q2 versus Q1 as Bertelsmann (BAI) – which made 5 VC investments in Q1, made none in Q2.

BASF and Bosch VC funds saw much lower VC investment activity in Q2.

France saw Sanofi launch a new global research institute in China (its fourth such global institute), Air France/KLM acquired an additional US$200 million to increase its stake in China Eastern (still below 10 percent) and TOTAL released updated data on its solar panel JV (TEESS) with Envision, which appears to be making strides into the Chinese commercial and industrial user segment.

Other European countries

Norway saw two JVs, one to develop offshore wind in the Yellow Sea and one with UAC, a supplier of fiberglass pressure vessels, to build a large-scale production facility in China.

Finland – Finnair announced a new JV with Shanghai’s Juneyao Air to expand air services between Finland and China.

Switzerland – Clariant opened its new production facility for light stabilizers.

Italy – Daerg Chimica, a specialist in car washing business operating in 45 countries, announced the launch of its Chinese business.

Netherlands – LyondellBasell announced that Jiangsu Fenghai will use its Spheripol 400 kilotons per annum (KTA) and Hostalen ACP300 KTA Hostalen technology for its new facility to be built in Lianyungang.

UK – (amounts with disclosed values of estimated US$250 million) – saw the acquisition of a majority (73 percent) stake in a small Chinese industrial company, acquisition of a 10 percent stake in a regional Chinese freight organization, a JV involving China Everbright Fund providing growth capital for IP Group’s China based portfolio companies, a chemical manufacturing JV, a JV in life sciences/AI, a small petrochemicals JV (via Shell), and a data focused JV involving Unilever, Alibaba’s Brand DataBank, and Fudan University.

A sizeable infant formula business exit was made by Reckitt Benckiser, a leading UK consumer health group.

Included in this analysis are transactions and/or investments which have both been signed and announced. Omitted from this analysis are transactions involving publicly traded debt or equities.

We are grateful to Henry Tillman of China Investment Research for the use of the data in this article. Contact: henry.tillman@grisonspeak.com or visit: www.chinainvestmentresearch.org/.

About Us

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.

Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.

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Investment

Taxes should not wag the tail of the investment dog, but that’s what Trudeau wants

Published

6 hours ago

April 23, 2024

Anne Joseph

Kim Moody: Ottawa is encouraging people to crystallize their gains and pay tax. That’s a hell of a fiscal plan

Prime Minister Justin Trudeau, Finance Minister Chrystia Freeland and cabinet ministers before the tabling of the federal budget on Parliament Hill in Ottawa. Photo by JUSTIN TANG/THE CANADIAN PRESS/FILE

The Canadian federal budget has been out for a week, which is plenty of time to absorb just how terrible it is.

The problems start with weak fiscal policy, excessive spending and growing public-debt charges estimated to be $54.1 billion for the upcoming year. That is more than $1 billion per week that Canadians are paying for things that have no societal benefit.

Next, the budget clearly illustrates this government’s continued weak taxation policies, two of which it apparently believes are good for entrepreneurs. But the proposed $2-million Canadian Entrepreneurs Incentive (CEI) and $10-million capital gains exemption for transfers to an employee ownership trust (EOT) are both laughable.

Why? Well, for the CEI, virtually every entrepreneurial industry (except technology) is not eligible. If you happen to be in an industry that qualifies, the $2-million exemption comes with a long, stringent list of criteria (which will be very difficult for most entrepreneurs to qualify for) and it is phased in over a 10-year period of $200,000 per year.

For transfers to EOTs, an entrepreneur must give up complete legal and factual control to be eligible for the $10-million exemption, even though the EOT will likely pay the entrepreneur out of future profits. The commercial risk associated with such a transfer is likely too great for most entrepreneurs to accept.

Capital gains tax hike

But the budget’s highlight proposal was the capital gains inclusion rate increase to 66.7 per cent from 50 per cent for dispositions effective after June 24, 2024. The proposal includes a 50 per cent inclusion rate on the first $250,000 of annual capital gains for individuals, but not for corporations and trusts. Oh, those evil corporations and trusts.

There is a lot wrong with this proposed policy. The first is that by not putting individuals, corporations and trusts on the same taxation footing for capital gains taxation, the foundational principle of integration (the idea that the corporate and individual tax systems should be indifferent to whether an investment is held in a corporation or directly by the taxpayer) is completely thrown out the window. This is wrong.

Some economists have come out in strong favour of the proposal, mainly because of equity arguments (a buck is a buck), but such arguments ignore the real world of investing where investors look at overall risk, liquidity and the time value of money.

If capital gains are taxed at a rate approaching wage taxation rates, why would entrepreneurs and investors want to risk their capital when such investments might be illiquid for a long period of time and be highly risky?

They will seek greener pastures for their investment dollars and they already are. I’ve been fielding a tremendous number of questions from investors over the past week and I’d invite those academics and economists who support the increased inclusion rate to come live in my shoes for a day to see how the theoretical world of equity and behaviour collide. It’s not good and it certainly does nothing to help Canada’s obvious productivity challenges.

Of course, there has been the usual chatter encouraging such people to leave (“don’t let the door hit you on the way out,” some say) from those who don’t understand basic economics and taxation policy, but these cheerleaders should be careful what they wish for. The loss of successful Canadians and their investment dollars affects all of us in a very negative way.

The government messaging around this tax proposal has many people upset, including me. Specifically, it is the following paragraph in the budget documents that many supporters are parroting that is upsetting:

“Next year, 28.5 million Canadians are not expected to have any capital gains income, and 3 million are expected to earn capital gains below the $250,000 annual threshold. Only 0.13 per cent of Canadians with an average income of $1.4 million are expected to pay more personal income tax on their capital gains in any given year. As a result of this, for 99.87 per cent of Canadians, personal income taxes on capital gains will not increase.” (This is supposedly about 40,000 taxpayers.)

Bluntly, this is garbage. It outright ignores several facts.

For one thing, there are hundreds of thousands of private corporations owned and controlled by Canadian resident individuals. Those corporations will be subject to the increased capital gains inclusion rate with no $250,000 annual phase-in. Because of the way passive income is taxed in these Canadian-controlled private corporations, the increased tax load on realized capital gains will be felt by individual shareholders on the dividend distribution required to recover certain refundable corporate taxes.

Furthermore, public corporations that have capital gains will pay tax at a higher inclusion rate and this results in higher corporate tax, which means decreased amounts are available to be paid out as dividends to individual shareholders (including those held by individuals’ pensions).

The budget documents simply measured the number of corporations that reported capital gains in recent years and said it is 12.6 per cent of all corporations. That measurement is shallow and not the whole story, as described above.

Tax hit for cottages

There are also millions of Canadians who hold a second real estate property, either a cottage-type and/or rental property. Those properties will eventually be sold, with the probability that the gain will exceed the $250,000 threshold.

Upon death, an individual will often have their largest capital gains realized as a result of deemed dispositions that occur immediately prior to death. This will have the distinct possibility of capital gains that exceed $250,000.

And people who become non-residents of Canada — and that is increasing rapidly — have deemed dispositions of their assets (with some exceptions). They will face the distinct possibility that such gains will be more than $250,000.

The politics around the capital gains inclusion rate increase are pretty obvious. The government is planning for Canadian taxpayers to crystallize their inherent gains prior to the implementation date, especially corporations that will not have a $250,000 annual lower inclusion rate. For the current year, the government is projecting a $4.9-billion tax take. But next year, it dramatically drops to an estimated $1.3 billion.

This is a ridiculous way to shield the government’s tremendous spending and try to make them look like they are holding the line on their out-of-control deficits. The government is encouraging people to crystallize their gains and pay tax. That’s a hell of a fiscal plan.

There’s an old saying that tax should not wag the tail of the investment dog, but that is exactly what the government is encouraging Canadians to do in the name of raising short-term taxation revenues. It is simply wrong.

I hope the government has some second sober thoughts about the capital gains proposal, but I’m not holding my breath.

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Investment

Everton search for investment to complete 777 deal – BBC.com

Published

13 hours ago

April 23, 2024

Getty Images

Shamoon Hafez

BBC Sport football news reporter

@ShamoonHafez

2 hours ago

Everton are searching for third-party investment in order to push through a protracted takeover by 777 Partners.

The Miami-based firm agreed a deal to buy the Toffees from majority owner Farhad Moshiri in September, but are yet to gain approval from the Premier League.

On Monday, Bloomberg reported the club’s main financial adviser Deloitte has been seeking fresh funding from sports-focused investors and lenders to get 777’s deal over the line.

BBC Sport has been told this is “standard practice contingency planning” and the process may identify other potential lenders to 777.

Sources close to British-Iranian businessman Moshiri have told BBC Sport they remain “working on completing the deal with 777”.

It is understood there are no other parties waiting in the wings to takeover should the takeover fall through and the focus is fully on 777.

The Americans have so far loaned £180m to Everton for day-to-day operational costs, which will be turned into equity once the deal is completed, but repaying money owed to MSP Sports Capital, whose deal collapsed in August, remains a stumbling block.

777 says it can stump up the £158m that is owed to MSP Sports Capital and once that is settled, it is felt the deal should be completed soon after.

Warren Buffett Predicts 'Bad Ending' for Bitcoin — Is It a Doomed Investment? – Yahoo Finance

Published

14 hours ago

April 23, 2024

NanoStockk / Getty Images

Currently sitting in sixth on Forbes’ Real-Time Billionaires List, Berkshire Hathaway co-founder, chairman and CEO Warren Buffett is a first-rate example of an investor who stuck to his core financial beliefs early in life to become not only a success but a once-in-a-lifetime inspiration to those who followed in his footsteps.

One of the most trusted investors for decades, the 93-year-old Buffett isn’t shy to pontificate on his investment philosophy, which is centered around value investing, buying stocks at less than their intrinsic value and holding them for the long term.

He’s also quite vocal on investments he deems worthless. And one of those is Bitcoin.

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Buffett’s Take on Bitcoin

Over the past decade, it’s been clear that the crypto craze isn’t something Buffett wants any part of. He described Bitcoin as “probably rat poison squared” back in 2018.

“In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending,” Buffett said in 2018. And his stance hasn’t wavered since. According to Benzinga, Buffett believes that cryptocurrencies aren’t a viable or valuable investment.

“Now if you told me you own all of the Bitcoin in the world and you offered it to me for $25, I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything,” Buffett said at the Berkshire Hathaway annual shareholder meeting in 2022.

Although the Oracle of Omaha has his misgivings about the unpredictable investment, does that mean crypto is doomed as an investment? Not necessarily.

For You: 10 Valuable Stocks That Could Be the Next Apple or Amazon

Is Buffett Wrong About Bitcoin?

Bitcoin bulls argue that while it’s not government-issued, cryptocurrency is as fungible, divisible, secure and portable as fiat currency and gold. Because they occupy a digital space, cryptocurrencies are decentralized, scarce and durable. They can last as long as they can be stored.

Crypto boosters continue to predict massive growth in the coin’s value. Earlier this year, SkyBridge Capital founder and former White House director of communications Anthony Scaramucci told reporters that Bitcoin could exceed $170,000 by mid-2025, and Ark Invest CEO Cathie Wood predicts Bitcoin will hit $1.48 million by 2030, according to Fortune.

“They really don’t understand the concept and the whole history of money,” Scaramucci said of crypto critics like Buffett on a recent episode of Jason Raznick’s “The Raz Report.” Because we place a value on “traditional” currency, it is essentially worthless compared with the transparent and trustworthy digital Bitcoin, Scaramucci said.

Currently trading around the $66,000 mark, Bitcoin is up nearly 50% in 2024. This means it’s massively outperforming most indexes this year, including the S&P 500, which is up about 6% in 2024.

Although Berkshire Hathaway has invested heavily in Bitcoin-related Brazilian fintech company Nu Holdings, which has its own cryptocurrency called Nucoin, it’s possible Buffett will never come around fully to crypto, despite its recent surge in value. It’s contrary to the reliable investment strategy that has served him very well for decades.

“The urge to participate in something where it looks like easy money is a human instinct which has been unleashed,” Buffett said. “People love the idea of getting rich quick, and I don’t blame them … It’s so human, and once unleashed you can’t put it back in the bottle.”

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This article originally appeared on GOBankingRates.com: Warren Buffett Predicts ‘Bad Ending’ for Bitcoin — Is It a Doomed Investment?

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