* Chinese firms raising offshore bonds, loans to do deals
* Chinese companies raised $60bln offshore bonds Dec-March
* Some firms say curbs give them edge over more domestic
* Some bankers warn of risks as deals lead to more leverage
HONG KONG, April 28 (Reuters) - Chinese conglomerates, still
eager to snap up assets abroad, are rushing to raise money
offshore in order to get around capital outflow curbs that have
made it much tougher for Chinese bidders to complete outbound
mergers and acquisitions.
Acquisitive Chinese conglomerates - including Fosun
International, WH Group and China Everbright -
that can use offshore assets to raise capital outside China say
the curbs are working to their advantage by deterring potential
rival bids from more domestically-focused Chinese companies that
have fewer options for raising funds overseas.
"Some Chinese companies have missed out on overseas
opportunities due to lengthy regulatory processes at home, but
if you can raise U.S. dollars and invest in dollars too, you
would not be shackled by regulatory and forex issues," said Chen
Shuang, CEO of China Everbright Limited, the Hong Kong
investment arm of state-owned China Everbright Group.
Chinese bidders spent a record $105 billion on assets
ranging from movie studios to football clubs in 2016 but over
the past six months Beijing – in a bid to prop up the flagging
yuan – has cracked down on companies taking money offshore to
buy non-core assets.
This hasn't stopped China's conglomerates, who remain hungry
for overseas purchases.
They have been leveraging a range of overseas assets,
including listed subsidiaries, privately-held affiliates and
insurance cash, to raise capital from equity and bond issuance,
as well as loans offshore, bankers and executives at these
Chinese companies issued 93 offshore bonds worth about $60
billion from December 1st to March 2017, three times the amount
raised over the same year-ago period, according to Thomson
Reuters data - largely to fund deals, say bankers.
Fosun has been among the most active companies, raising $1.4
billion in offshore bonds since March via its British Virgin
Islands entity Fortune Star Ltd.
The conglomerate has said Beijing's capital controls are a
challenge, but it continues to have several means of financing
"We definitely have to make good use of our Hong Kong-listed
platforms which could offer us a number of means for
fundraising, including bonds and syndicated loans," Chen Qiyu,
co-president of Fosun said in an interview, referring to the
fact the group has several Hong Kong-listed subsidiaries.
LATE TO THE PARTY
Likewise, Chinese tech behemoth Tencent last month inked a
$4.65 billion offshore loan in order to finance more
deals,, while other Chinese companies such as WH
Group can draw on dollar revenues generated by overseas
Wan Long，chairman of WH Group, said capital restrictions
were not a concern for him as nearly 60 percent of the group's
revenues are derived from the United States following its $4.7
billion takeover of Smithfield Food Inc in 2013.
"As a global company, we are not worried. We have revenues
in foreign currencies which can flow freely. But for Chinese
firms which have just started to go global, it will be difficult
Bankers said they had grown reluctant to deal with Chinese
purchasers that do not have overseas capital.
When Tencent formed a consortium to snap up European game
developer Supercell for $8.6 billion last October, it chose
several Chinese investors with ample cash overseas. They
included China CITIC Bank Corp and bad debt manager
China Cinda Asset Management.
One person involved in the consortium said Tencent did not
even consider bringing onboard Chinese investors that did not
have offshore funds to hand because the deal had to move fast.
Tencent didn't respond to a Reuters request for comment.
According to Sam Sun, greater China head of AGIC Capital, an
Asian-European private equity firm, capital curbs could also
benefit Chinese buyers with offshore money by lowering prices
for assets due to less competition from domestic rivals.
“Last year we saw a lot of Chinese funds and buyers going
overseas and there was a concern in the market because it would
inflate the price artificially,” he said. “Capital controls have
made people think more rationally what they really want to
acquire. That did reduce competition in a good way."
But some bankers privately warned of rising risks for
increasingly-leveraged Chinese conglomerates that continue to
use new assets to raise yet more finance in order to carry on
their overseas shopping spree.
“It's a big risk," said one banker of such types of deals.
"If any of its (the buyers') leveraged overseas units become
shaky due to whatever reasons then it would set off a chain
reaction. The financial strength of the underlying overseas
assets is very critical."
Aviation-to-property group HNA Group which has
been aggressively snapping up global assets, for example has
pledged newly-acquired entities as collateral to help fund the
next purchase, according to people who have advised on its
Late last year, its Irish subsidiary Avolon, which it
acquired in 2015, raised a $8.5 billion loan mainly from Morgan
Stanley and UBS, to help back its $10 billion takeover of the
aircraft-leasing business of New York-based CIT Group, Thomson
Reuters publication IFR reported.
A spokeswoman for HNA declined to comment.
(Reporting by Julie Zhu; Additional reporting by Sumeet
Chatterjee in Hong Kong; Editing by Michelle Price & Simon