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
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
Foreign Banks Allowed to Operate in Myanmar
After more than 50 years of banning, the Central Bank of Myanmar has issued the first final licenses allowing four foreign banks to operate in Myanmar.
Tanzanian Draft National Energy Policy of 2015
Highlights on the ongoing and upcoming industry developments with focus on the transition of the energy sector since the introduction of the Big Results Now! campaign
Mineral Rights Available in Tanzania
Overview of the mineral rights available in Tanzania, with specific focus on the various categories of mineral rights
The Legal Framework of the Aviation Sector in Tanzania
As attention turns to Tanzania’s trade and energy opportunities, the spotlight has fallen upon the nation’s infrastructure. This update focuses on the capabilities and issues of the Tanzanian aviation sector.
Oil price volatility - Offshore oil storage
Are there any legal concerns with tankers being used for floating storage?
Oil price volatility - risks and opportunities in 2015
While many companies can weather the oil price slide and volatility, some industry players face a real risk of insolvency.
India: Union Budget 2015
A bullet-point overview of changes in Direct Tax, Indirect Tax and Goods and Service Tax in India in light of Finance Minister Arun Jaitley’s first full-year Budget…
Prohibition against transfer of personal data outside Hong Kong
Section 33 of the Personal Data (Privacy) Ordinance (PDPO) prohibits the transfer of personal data to places outside Hong Kong, except in circumstances specified in the PDPO.
Security of payment under FIDIC contracts: more secure, for now
The High Court of Singapore recently handed down an important judgment in relation to the enforceability of Dispute Adjudication Board (DAB) decisions under the FIDIC forms of contract.
Insurance Laws (Amendment) Bill passed as Ordinance in India
The long-awaited Insurance Laws (Amendment) Bill has become a provisional law in India. The Bill amends the Insurance Act (1938), the General Insurance Business (Naturalisation) Act (1972), and the Insurance Regulatory and Development Act (1999).
SICC: now open for business
On Monday 5 January 2015, the Singapore International Commercial Court ("SICC") was officially opened...
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.
Myanmar insurance update
Clyde & Co partner Michael Horn recently visited Myanmar's commercial capital Yangon and reports on the current state of the insurance market...
Launch of the online mining cadastre transactional portal
Plus, a summary of the key mineral rights available in Tanzania; and, a look at the manner in which mineral rights can be transferred.
Restrictions imposed on holders of mineral rights
This briefing looks at some of the restrictions imposed on holders of mineral rights in Tanzania by the Mining Act 2010
Draft local content policy for the oil & gas industry in Tanzania
The first draft of the long-awaited local content policy for the oil & gas industry in Tanzania has now been published by the Ministry of Energy and Minerals ...
Tanzania: Revocation of mining licences
The Tanzanian government recently announced the cancellation of a total of 174 mining licences. This mining update examines the key continuing obligations imposed by the Mining Act upon mining licence holders.
Mining Development Agreements
In this month’s mining briefing we look at Mining Development Agreements (MDAs) and the role that they play in the mining sector in Tanzania.
The Tanzanian railway system: current legal framework
The railway system of mainland Tanzania has a total track length of 3,676 kilometers (km) with two separate networks, run by two separate organisations ...
Related Articles
Toward an innovative new strategy for In-House Counsel
An in-house legal team can achieve much more than saving money, but it requires a more strategic approach than most companies have adopted, writes Mitchell Kowalski, the Gowling WLG Visiting Professor in Legal Innovation at the University of Calgary Law ...
A fresh approach to legal solutions
We talk to Titus Rahiri, director and founder of KorumLegal, about technology, disruption and the future of legal services ...
Lawyering in the gig economy
Mardi Wilson, head of ES Agile in Hong Kong, talks to us about how working on an interim basis offers the benefit of flexibility and greater work-life balance for lawyers ...
Related Articles by Jurisdiction
The importance of communication
Robert Southgate, Head of Corporate Governance, Compliance & Contentious Legal for the Asia, Middle East & Africa region for British Telecommunications (BT), reveals to the In-House Community his methods of motivation, what makes external ...
Investigative Intelligence
Investing in Mongolia: Opportunities and risks

A fresh approach to legal solutions
We talk to Titus Rahiri, director and founder of KorumLegal, about technology, disruption and the future of legal services ...
Latest Articles
ADGM announces tech start-up licensing regime
The licence provides access to a Professional Services Support Programme aimed at allowing entrepreneurs entry to a community of businesses, financial services and professional advisers.
Further hurdles for regulatory approval of notifiable mergers in South Africa
On July 12, the Competition Amendment Bill was introduced in Parliament, substantially revising the earlier version of the Bill.