Photographer: Qilai Shen/Bloomberg

Credit Suisse's Cestar Sees Chinese Buyers Targeting European High-Yield Names

Europe provides bright outlook for China-related M&A through 2017.

Chinese buyers are “helping to lubricate the M&A market in Europe,” and their focus now includes more lower-rated companies as well as investment-grade names, according to Mathew Cestar, Credit Suisse’s co-head of credit in EMEA.

Current purchase prices represent “an interesting entry point” particularly in the retail, real estate, sport/entertainment sectors, Cestar said. 

Recent Chinese acquisitions include the agreement to buy Odeon & UCI Cinemas Group by Wanda Group's AMC Entertainment Holdings and Midea Group's plan to buy a stake in German robot-making company Kuka, backed by a loan of more than 4 billion euros.

Many deals have been executed on a standalone, non-recourse basis. A recent example is the 471 million-euro sale of bonds from a subsidiary of Shandong Ruyi Technology Group in May, with proceeds used to finance the acquisition of SMCP. 

The volume of China-related M&A is expected to remain elevated into 2017, Cestar said. Reasons for this include Chinese investors’ desire to diversify, Europe’s supportive regulatory framework and European firms’ focus on core businesses and selling assets.

“Chinese buyers require debt investors to do further diligence but they are comfortable, generally speaking, with the ownership and very supportive,” Cestar said. They are “adopting international standards, which are used by other private equity houses in Europe” and they “tend to subscribe to methods of financing already in use in the Europe market and don’t bring more creative solutions.”

Leveraged credit markets in Europe have been robust and the new issue calendar is picking up again, Cestar said. Sisal Group sold a 725 million euro dual-tranche bond earlier this month, which the Credit Suisse banker sees as a bellwether deal for more activity from well-known high-yield issuers in July.

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