Luo Jun, Bloomberg
Shanghai: High asset prices have become the biggest obstacle to mergers and acquisitions in Asia’s financial services industry, according to a PricewaterhouseCoopers LLP survey.
Half of the 230 financial institutions polled said paying too much for acquisitions was their main concern, compared with 32% in a 2005 survey. The earlier poll identified regulatory uncertainty as the key obstacle.
“Across the region, the regulatory environment hasn’t actually changed materially,” Matthew Phillips, a partner in PWC’s Transactions Services division, said in Shanghai yesterday. “Therefore pricing is becoming a much greater risk. The rapidly evolving markets and significant growth factored into deal prices make it very easy to overpay.”
Companies announced $64.5 billion (Rs2,61,668 crore) of mergers and acquisitions in financial services in 2006, up two-thirds from a year earlier, according to PWC. China and India provide the most attractive opportunities as the world’s two-fastest growing major economies, PWC said.
Foreign investors announced $10.7 billion of purchases in China’s financial industry last year, down from $15.9 billion in 2005. The nation’s three biggest state-owned banks accounted for four-fifths of the 2005 total, selling a combined $12.7 billion of stakes to global investors including Goldman Sachs Group Inc. and Bank of America Corp. before share sales.
China has been gradually opening its banking, insurance and asset management industries since joining the World Trade Organization in 2001. Foreign banks including HSBC Holdings Plc and Citigroup Inc. in December were allowed to tap China’s $2.2 trillion household savings. The U.S. is urging further opening, including lifting China’s 25% limit on foreign ownership of banks.
China’s smaller city commercial banks and life insurers are likely to be the main targets for future foreign investment, PWC said. Overseas investors also indicated strong interest in buying into local brokerages to underwrite domestic shares after the nation’s equity markets tripled in value since end of 2005 to more than $2 trillion.