CAPITAL MARKETS FOCUS: MERGERS & ACQUISITIONS
Companies around the world are stepping up their due diligence on mergers and acquisitions involving Chinese counterparties, after several major deals have been called into question as a result of Peking’s widening corruption probe.
Zhou Yongkang—China’s former energy and security chief and the architect behind much of the push by Chinese companies to acquire foreign energy and natural resources companies—is being investigated by the Communist Party for “suspected serious disciplinary violations.” Some of the deals he championed—as well as some championed by others involved in the probe—are now seeing serious delays in reaching completion.
In Canada, for example, Athabasca Oil faced a lengthy delay on a $1.2 billion payment from PetroChina for the sale of a 40% stake in an oil sands project earlier this year. The delay came after two executives from PetroChina’s Canadian operations got caught up in the corruption purge.
Given the heightened risk of anti-corruption enforcement, more acquirers of Chinese companies are making compliance-risk analysis an integral part of their pre-closing due diligence, according to Paul Hastings, a global law firm. “The mere reputational risk of being associated with corrupt activities can jeopardize future business opportunities for any multinational corporation or global investment fund,” the firm noted. In addition, foreign companies operating in China must now confront the possibility of becoming the target of a Chinese anti-corruption investigation, the law firm added.