China Unveils New Capital Controls

Back in March, when China’s various failing forms of soft capital controls had failed to stem China’s relentless capital outflows, we reported that “bizarro M&A” deals were rapidly becoming “China’s Most Innovative Capital Outflow Yet.” We pointed out several M&A deals that simply made no sense from the fiduciary perspective of a rational buyer, and had all the signs of a panicked attempt to park cash offshore in the former of mergers and acquisitions with zero regard for cost or return on investment. Among these were:
Zoomlion, a lossmaking Chinese machinery company that is partially state-owned: its total debt stands at 83 times its EBITDA. Fosun, a serial Chinese acquirer that spent $6.5bn on stakes in 18 overseas companies during a six-month period last year, had a a 55.7x total debt/EBITDA in June 2015. “Fosun has bought brand names such as Club Med and Cirque du Soleil as well as a host of other assets including the German private bank Hauck & Aufhaeser.” China Cosco Holdings acquisition of the Greek Piraeus Port Authority for 368.5m. Cosco has promised to invest 500m in the Greek port despite having total debt at 41.5x its EBITDA! Cofco Corporation, which recently reached an agreement with Noble Group under which its subsidiary, Cofco International, would acquire a stake in Noble Agri for $750m (in the process preventing the insolvency of the biggest Asian commodities trader), has total debt equivalent to 52 times its EBITDA! Bright Food, which bought the breakfast group Weetabix for $1.2bn last year, and has total debt at 24 times EBITDA!

This post was published at Zero Hedge on Nov 26, 2016.