CRI听力：Opportunity Knocks for Chinese Buyers' M&A in the Mining and Metals Sector

Global mining mergers and acquisitions slumped nearly 40 percent to about 130 billion dollars last year, with the market value for companies' dropping 40-60 percent.

Cai Lin, Managing Director of Transaction Advisory Services at Ernst & Young China, says commodity prices slipped sharply in 2008, especially the fourth quarter. But the first quarter in 2009 saw most metal prices pick up, partly due to global-wide stimulus packages.(www.hxen.net)

"In China we have a 4-trillion-yuan worth stimulus package. We hope to see more large infrastructure construction projects. This will help stabilize the demands for metals and mineral products."

More than 3 trillion US dollars in combined economic stimulus packages have been announced around the world and it's estimated that 30-40 percent of most packages will be going into infrastructure. Ernst & Young says more than 70 percent of China's stimulus package alone is set to be in metals-intensive infrastructure spending.

Raymond Ng, Head of Energy, Chemicals and Utilities at Ernst & Young Greater China, forecasts good prospects for Chinese companies' cross-border acquisitions, and emphasizes that there will be strong demand for resources in the country.

He says Chinese companies are relatively well-positioned in the financial crisis compared with overseas counterparts, and a stronger yuan could contribute to the affordability of these companies. What's more, a sound Chinese banking system will financially back up Chinese buyers' offshore bids.

"In the coming 12 to 18 months, we will see a good opportunity for Chinese companies to make global takeovers. Given that metals and energy resources prices are relatively low at present, the target companies are running short of cash. So we could buy the assets at reasonable prices. And we would hardly make the deals once these companies survive after 18 months."

However, Cai Lin notes Chinese buyers should exercise prudence when making outbound M&A purchases, and avoid any blind purchase.

"With the recent falls in market value of mining and metals companies, Chinese companies that have cash on hand may find the pricing attractive. However, buyers should be aware that the price is not the only factor that makes a deal successful in the long run. Chinese companies may need to consider many other risk factors associated with cross-border transactions, particularly in the area of post-merger integration, which is critical to ensure the transaction achieves stated objectives."

She suggests buyers to conduct due careful investigation at the initial stage of the deal, gathering comprehensive information that will help assess the value of the target business.

Cai Lin adds that a competent managing team for the post-merger integration is necessary. What's more, Chinese buyers should assess the political risks while making investments overseas, and be aware of the cultural differences there.

The value of M&A deals by Chinese companies increased by over 9 times in 2008. The largest deal was the 14.3-billion-dollar acquisition of a stake in Rio Tinto by the Aluminum Corp of China.

Daming, CRI news.