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UBS bullish on bagging more deals

(China Daily/agencies)
Updated: 2009-09-03 07:57

UBS said there has been a pick in capital market activities in the last two months. [China Daily]

UBS has a series of Chinese equity-raising deals in the pipeline and expects a strong third quarter despite the recent plunge in the Shanghai stock market, a senior investment banker told Reuters on Tuesday.

Abundant liquidity and relatively stable valuations should help keep a steady stream of share issues coming from Chinese companies for the time being, said Philip Partnow, deputy head of UBS's investment banking department in China.

"There will be some more deals, which we cannot talk about just yet, coming out in the near future. So it is turning into a very active and busy period," Partnow said.

"It will be a very active third quarter and we hope that will continue into the fourth quarter," he said.

Among its biggest China-related deals in the past month, UBS was appointed to sponsor a $2.9 billion Hong Kong listing by China Minsheng Banking Corp and to help arrange a share sale by China Pacific Insurance in Hong Kong.

Partnow said China's equity capital markets had recently passed an inflection point after a subdued start to the year.

"In the last four to six weeks, there has been a real noticeable increase in equity market activities," he said.

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The spurt in initial public offerings (IPOs) and share placements have coincided, however, with a sharp sell-off in China's domestic stock market.

The Shanghai Composite Index dropped 21.8 percent in August after recording seven consecutive monthly gains, raising doubts about how long the equity markets will be able support capital raising activities.

"The deals we launched this week and the deals we are getting ready to launch - we are quite confident they will get done," Partnow said.

"Now, exactly how long does that window stay open? That is very hard to tell. We are hopeful, we are optimistic, but that is anybody's guess."

He said that the downturn in the market was actually helpful from a short-term perspective, leading issuers to be more pragmatic about valuations and thereby making it easier to wrap up deals.

M&As increase

Acquisitions involving Chinese companies have also risen considerably over the past year, particularly with Chinese firms looking for stakes abroad in the resources sector. But real activity still lags somewhat behind the hype, Partnow said.

"The story has probably been told by the press at a level beyond the reality in terms of the number of deals that have actually gotten done," he said.

"But I do think it is a good story, it is a good theme and it is something that I believe is here to stay. China will continue to do outbound acquisitions and I think that they will continue to be weighted toward the resource area."

UBS advised China's Yanzhou Coal Mining Co on its $2.9 billion deal to buy Australian coal miner Felix Resources Ltd, announced last month.

Chinese firms are likely to steer clear of taking stakes in foreign financial institutions after wracking up big paper losses over the past year, he said.

There has been a flurry of interest from Chinese automakers in acquisitions abroad - most notably, Tengzhong's bid to buy the Hummer brand from General Motors Co GM.UL - but Partnow said such deals were still very difficult for Chinese firms.

China already has expertise in the resources sector, which is relatively straightforward compared with the challenges of fixing highly complex companies like broken foreign autos companies, he said.

"You do not have to figure out what kind of coal people want to drive to work in the morning," he said.