Middle Eastern companies with big money are investing record amounts in China
Big-budget Middle Eastern investors are pouring record amounts of capital into China, while other international companies are pulling back.
Abu Dhabi Investment Authority, better known as ADIA, was involved in an $8.3 billion deal for the mall management unit of Dalian Wanda Group Co., along with another Abu Dhabi fund, Mubadala Investment Co. Lenovo Group Ltd. in May announced the sale of $2 billion in zero-coupon convertible bonds to Saudi Arabia’s sovereign wealth fund as part of a broader strategic pact with the tech-hungry kingdom.
Data compiled by Bloomberg shows that the volume of deals from Middle Eastern companies to Greater China has already reached a record $9 billion this year, with three months to go. Dealmakers expect the pace to accelerate in the coming quarters.
“The valuation of Chinese assets is the most attractive across the APAC region,” said Mayooran Elalingam, head of investment banking coverage & advisory in APAC at Deutsche Bank AG. “Investors in the Middle East are investing with a long-term perspective and are assuming that markets will normalize over time.”
Middle Eastern wealth funds, which together manage more than $4 trillion in assets, have become major players in dealmaking, accounting for more than half the value of all deals closed by global state-backed investors this year. Firms including ADIA, Saudi Arabia’s Public Investment Fund and Qatar Investment Authority backed deals worth $55 billion in the first nine months of 2024, according to data from consultancy GlobalSWF.
Meanwhile, many others around the world have been cutting spending, particularly in China, where they face increased regulatory scrutiny, geopolitical tensions, market volatility and a slowing economy. Even China-focused mutual funds have shifted their focus to other regions, including Southeast Asia, Japan, Australia and even Europe.
Foreign investors pulled a record amount of money out of China in the April-June period. China’s central bank unveiled a broad package of monetary stimulus measures on Tuesday to revive the world’s second-largest economy, underscoring growing concerns within Xi Jinping’s government about slowing growth and weakening investor confidence.
“Sovereign wealth funds have deep pockets and are eager to find interesting companies in Asia,” Elalingam said.
Given the limited competition, he added, Middle Eastern companies can acquire high-quality assets at significant discounts to other markets in the region and to historical multiples in China, particularly in sectors such as healthcare and consumer. Those funds are also building their expertise in sectors where China has a global competitive advantage, including in high-end manufacturing, he said.
Still, interest from Middle Eastern investors hasn’t made up for the overall decline in dealmaking activity in China. Transactions targeting Chinese companies have fallen 12% this year from a year earlier to $77 billion, according to data compiled by Bloomberg.
Reaching Within
“There is a lot of interest in China,” said Ho-Yin Lee, who helps run the Asian technology and communications investment bank at Citigroup Inc. “Middle Eastern investors are looking at companies that are leaders in their respective sectors and are willing to collaborate.”
Geopolitical tensions are less of a concern for Middle Eastern funds looking to invest in China, according to Samuel Kim, chairman of Asia Pacific mergers and acquisitions at Deutsche Bank.
“We have seen a number of situations where Middle Eastern sovereign wealth funds have played a significant role in facilitating acquisitions,” said Kim, who is also chief country officer for Deutsche Bank in South Korea.
Political ties are also growing stronger. Chinese Premier Li Qiang said earlier this month that the country is willing to deepen cooperation with Saudi Arabia in oil and gas, petrochemicals and infrastructure. Chinese companies have also been encouraged to invest in Saudi Arabia in areas such as new energy, information and communications, and digital and green economies.
Government officials, investment bankers, lawyers and Asia-based consultants are spending more time meeting with Middle Eastern investors traveling through China and the rest of the Asia-Pacific region in search of expansion opportunities.
Louis Lau, a partner in KPMG’s capital markets advisory group in China, said greater interaction with the Middle East would be positive for Hong Kong, which relies on Chinese companies listing in the city and the US and Europe for financing, as it helps diversify its capabilities and sources of funding.
Aramco is shopping
Saudi Aramco is busy in China. The world’s largest crude exporter is considering investing in more chemical plants in the country, adding to the deals it has already struck to secure long-term buyers for its crude. Aramco has eyes on a 10% stake in China’s Hengli Petrochemical Ltd. and similar deals with two other Chinese companies. It closed a $3.4 billion deal last year for a stake in Rongsheng Petrochemical Co., its largest-ever overseas acquisition.
Aramco is also looking beyond oil and petrochemicals. In June, it announced plans to take a 10% stake in an automotive joint venture with France’s Renault SA and China’s Zhejiang Geely Holding Group Co., a deal that valued Horse Powertrain Ltd. at about $8 billion.
Saudi Arabia and other countries are stepping up efforts to diversify from oil into sectors such as clean energy, industry, technology, tourism and sports.
The long-term goal of transforming their economies will likely drive their investment strategies in places like China, said Simon Rahimzada, a Dubai-based partner at law firm Ashurst. Some wealth funds may invest in companies that also want to expand in the Middle East, so they can foster an exchange of know-how, Rahimzada said.
The surge in investment activity in China has had some side effects. Middle Eastern funds have also faced increased scrutiny of U.S. deals from the Biden administration as part of a broader pushback against entities seen as having close ties to Beijing, Bloomberg News reported.
Cash flows
“Not only have we seen a much larger amount of capital being deployed from the Middle East in recent times, but there has also been an increasing focus on diversification into Asian economies, including China,” said Lei Li, head of industrial investment banking for Asia at Citigroup.
Logistics, consumer and healthcare assets have also attracted money from the Middle East. DP World, a Dubai-based global supply chain solutions leader, acquired Cargo Services Seafreight this year, a deal that gave it a controlling stake in Hong Kong-listed CN Logistics International Holdings Ltd. Mubadala and CBC Group bought UCB SA’s adult neurology and allergy businesses in China in a $680 million deal.
QIA and Saudi Arabia’s PIF have been approached as potential co-investors to join a consortium seeking to acquire Hong Kong-listed logistics real estate company ESR Group Ltd., people familiar with the matter said.
Their interest also extends to technology, including chipmaking and artificial intelligence. A branch of Saudi Aramco joined the latest funding round for startup Zhipu AI, becoming the first known foreign company to back a major Chinese player in generative AI.
Battery production for electric vehicles and data centres are also interesting areas, said Dean Moroz, a partner at Ashurst in Abu Dhabi. An attractive return on investment is still the main consideration, he added.
Outside China
It’s not just China: the wider APAC region has seen a significant increase in capital flows from the Middle East, says Deutsche Bank’s Elalingam.
ADIA operates in Southeast Asia and India. The fund is among a group of investors seeking to take Malaysia Airports Holdings Bhd. private, while it was also a co-investor in Columbia Asia Healthcare Sdn.’s acquisition of hospital operator Ramsay Sime Darby Health Care Sdn. In India, it has bought an additional stake in billionaire Mukesh Ambani’s fast-growing retail unit.
In Japan, another Asian market where dealmaking activity is booming, Mubadala-owned Fortress Investment Group made a bid for Joban Kosan Co., the operator of the Spa Resort Hawaiians leisure center in Fukushima Prefecture.
“They are smart and experienced investors, and bankers need to provide them with solid investment opportunities to attract their interest,” Elalingam said. “They want to be involved in deals from the beginning and not be seen as a last resort to simply help get things done.”