Asia (Other)

Screen Shot 2018-01-24 at 3.05.22 PMStrong growth and a rising middle class continue to attract foreign investors to the region, though outbound activity has fallen. By Nick Ferguson, In-House Community

Asia remains the fastest-growing region in the world and continues to attract buyers that want to piggyback on that growth potential. However, the story of M&A activity in Asia during the past year reflects a more complicated reality than the acquisition of growth.

China’s crackdown on overseas acquisitions, for example, has had a significant effect on outbound M&A after regulators expressed fears that some Chinese companies were engaging in risky deals. According to data from Mergermarket, outbound deals from Asia Pacific dropped by 54% compared to 2016, largely on the back of a fall in Chinese activity.

That story has been well told, but one that is less reported is the growth in inbound M&A into Japan. For the past few years, there has been a strong and consistent trend of Japanese buyers going overseas — both within Asia and further afield — to escape their shrinking domestic market, but in 2017 it was the value of inbound deals that really stood out.

With a total of US$21.3 billion, the level of M&A targeting Japanese companies more than doubled during 2017, driven by US buyers in deals such as Key Safety Systems’ US$1.6 billion acquisition of Takata.

This level of activity is largely a result of the Japanese government’s recent efforts to reverse its long history of resistance to foreign ownership. The demand has always been there — Japan has high-quality assets and skilled workers — but it is only now that overseas companies are seeing the opportunity to take part.

Outbound deals still account for a bigger share of activity, but the trend is in the opposite direction, with deal value falling by more than a third during 2017 to US$59 billion.

Inbound M&A into the rest of the Asia-Pacific region rose 22% during 2017 to reach close to US$108 billion, once again driven mostly by US acquirers. The hottest sector is technology, where deal value was up by almost 200% in 2017.

Overall M&A activity in Asia Pacific ex-Japan was up almost 5% to US$673 billion. The most active law firms in terms of deal value, according to Mergermarket, were King & Wood Mallesons, Clifford Chance and Skadden Arps.

Screen Shot 2018-01-24 at 3.05.22 PMSee also:

Mergers and acquisitions in Thailand
By Chandler MHM

Africa is primed for private equity investments
By Cliffe Dekker Hofmeyr

India

Screen Shot 2018-01-24 at 4.25.19 PMOne of the region’s biggest deals announced in 2017 was the US$12.7 billion merger of Vodafone India and Idea Cellular. It was also a significant deal for India, demonstrating a commitment towards equalising rights and shareholding over a period of time, according to Rabindra Jhunjhunwala, a partner at Khaitan & Co.

For the time being, Vodafone is expected to own 45.1% of the combined company after transferring 4.9% to the promoters of Idea when the deal is completed later this year. “The promoters of Idea will then hold 26%, while the balance will be held by the public,” says Jhunjhunwala. “However, the promoters have the right to acquire up to 9.5% additional stake at an agreed price from Vodafone with a view to equalising the shareholding overtime. Further, if the shareholding of the two parties is not equal after certain agreed period of time, Vodafone will sell down shares in the combined entity to equalise its shareholding to that of the Aditya Birla Group.”

This merger has already served as a template for other deals, says Jhunjhunwala. The acquisition of Essar Oil by Russia’s Rosneft, for example, faced several regulatory and political hurdles and, learning from the Vodafone experience, the investors sought comfort from Indian authorities that they would not face any withholding tax issues.

India has not always been the easiest place for foreign buyers, but some progress is being made to open the economy to overseas investors. In November, the Reserve Bank of India (RBI) issued new foreign-exchange rules that revise sectoral caps in certain sectors, such as private security agencies and commodities exchanges, and allow non-residents to acquire capital instruments renounced by residents in rights issues (and do away with the need for RBI approval for such transfers). The rules also make some clarifications and procedural changes.

In January, the government also relaxed norms on foreign direct investment in sectors such as single-brand retail, construction, power exchanges and airlines.

“Key amendments include permitting 100% FDI in SBRT under automatic route, clarification permitting FDI in real estate broking and primary investment up to 49% in power exchanges,” says Jhunjhunwala.

Anti-trust laws in India also witnessed changes, with the creation of an exemption from mandatory approval for enterprises with assets of less than Rs3.5 billion (US$55m) in India or turnover of less than Rs10 billion.

The recently introduced Insolvency and Bankruptcy Code (Amendment) Ordinance 2017 promulgated by the president is also paving the way for clean businesses, according to Jhunjhunwala, who says that India is witnessing significant activity in terms of the sale of distressed assets pursuant to the Insolvency and Bankruptcy Code 2016.

Screen Shot 2018-01-24 at 3.21.46 PMIndonesia

Southeast Asia’s biggest economy is another exciting frontier for M&A in the region, with activity on the rise in 2017, driven by tech-focused deals such as the US$1.1 billion investm

ent into local Indonesian e-commerce platform Tokopedia, led by Alibaba, and the US$1.2 billion investment into Indonesian ride-hailing startup Go-Jek, led by Tencent.

Such activity has been helped by the government’s efforts to improve the environment for foreign investors during the past few years, as reflected in the World Bank’s Ease of Doing Business Report, which raises Indonesia’s ranking from 91 in 2017 to 72 in 2018. However, there is clearly still much room for improvement and Joko Widodo, the president, has set a target of 50th position by 2019 and 40th position by 2020.


See also:

Screen Shot 2018-01-24 at 3.05.22 PM

Tags: Asia, Corporate M&A
Related Articles by Firm
Myanmar Opened its Broadcasting and TV Market
The Broadcasting Law 2015 opens commercial licenses for TV or radio for bidding under an independent supervisory authority. This offers wide opportunities to investors from broadcasting infrastructures to broadcasting services.
Clasis Law (India) Newsletter August 2015
Analysis of the revocation of a company's drug patent and other key court rulings and updates on corporate and commercial matters
The new CIETAC Arbitration Rules 2015
The New Rules adopt both best practices and the latest developments in international commercial arbitration and accommodate the increasing needs of the parties arbitrating at CIETAC.
Tanzania: Prospecting for and mining of radioactive minerals
New uranium mining projects have recently been announced in Tanzania. This briefing looks at the legislative framework surrounding radioactive minerals in Tanzania.
Related Articles
Understanding “Business Transfer”
When investing in a business in Vietnam, an investor may prefer to cherry-pick a specific part of the business rather than buying the entire company ...
China’s newly amended Anti-Unfair Competition Law changes the rules of the game
On November 4, 2017, the Standing Committee of the National People’s Congress (the NPC) of the People’s Republic of China (PRC) approved and published amendments to the Anti-Unfair Competition Law (AUCL) that substantially change the previous law enacted in 1993 (the ...
Deploying AI in the legal department
Artificial intelligence (AI) is changing the face of global legal practice and will continue to do so for the foreseeable future ...
Related Articles by Jurisdiction
Market update and salary survey for the legal in-house sector in Asia
TAYLOR ROOT – ASIAN-MENA COUNSEL – 2015 market review and 2016 preview ASIAN-MENA COUNSEL is delighted to present Taylor Root’s tenth annual survey for the in-house legal sector in Asia. The findings offer valuable insights into the hiring trends and salary ...
Buyer, beware!
The final of four reports from Kroll and Liberty Asia on how to mitigate any hidden compliance and reputational risks relating to human trafficking issues …
Latest Articles
The new UAE Pledge Law
Promulgation of regulations that make registration available.
Exchange control laws of India: Compounding of contraventions
India has a complex exchange control regulatory mechanism that investors often find it difficult to comply with.
Corporate Social Responsibility
There is a growing realization among the corporates that business growth along with positive community/social impact is now an expected goal ...