(Bloomberg) -- Deep-pocketed Middle Eastern investors are deploying a record amount of capital in China just as other global firms retreat.
Abu Dhabi Investment Authority, known as ADIA, was among investors in Chinese appliance maker Midea Group Co.’s $4 billion listing in Hong Kong last week, according to people familiar with the matter, who asked not to be identified because the investment is private.
ADIA has also been involved in an $8.3 billion deal for Dalian Wanda Group Co.’s shopping mall management unit, along with another Abu Dhabi fund, Mubadala Investment Co. Lenovo Group Ltd. in May announced a sale of $2 billion worth of zero-coupon convertible bonds to Saudi Arabia’s sovereign wealth fund as part of a broader strategic pact with the tech-hungry kingdom.
Data compiled by Bloomberg show that the volume of deals from Middle Eastern firms into Greater China has already reached a record $9 billion this year, and there’s still three months to go. Dealmakers expect the pace to pick up in the coming quarters.
“Valuation of Chinese assets are the most attractive in the entire APAC region,” Mayooran Elalingam, head of investment banking coverage & advisory in APAC at Deutsche Bank AG. “Middle East investors are investing with a long-term time frame and taking a view that markets will normalise over time.”
Middle Eastern wealth funds, which together control more than $4 trillion of assets, have become key players in dealmaking, accounting for more than half the value of all deals done by global state-backed investors this year. Firms including ADIA, Saudi Arabia’s Public Investment Fund and Qatar Investment Authority backed deals worth $55 billion in the first nine months of 2024, according to data from consultancy GlobalSWF.
Meanwhile, many others have reduced spending globally, particularly in China where they’re faced with increasing regulatory scrutiny, geopolitical tensions, market volatility and a slower economy. Even China-focused investment funds have been redirecting their focus towards other regions including Southeast Asia, Japan, Australia and even Europe.
A representative for Midea declined to comment, while ADIA didn’t have an immediate comment.
Foreign investors pulled a record amount of money from China in the April-June period. China’s central bank on Tuesday unveiled a broad package of monetary stimulus measures to revive the world’s second-largest economy, underscoring mounting alarm within Xi Jinping’s government over slowing growth and depressed investor confidence.
“Sovereign wealth funds have deep pockets and are hungry to find interesting businesses in Asia,” Elalingam said.
Given the limited competition, he added, Mideast firms are able to acquire high-quality assets at significant discounts to other markets in the region and relative to historic multiples in China, especially in sectors such as health care and consumer. Those funds are also building their know-how in industries where China has a global competitive advantage, including in high-end manufacturing, he said.
Yet the appetite from Middle Eastern investors doesn’t help make up for the overall loss of dealmaking activity in China. Transactions targeting Chinese firms this year are down 12% from a year earlier to $77 billion, according to data compiled by Bloomberg.
Reaching In
“There is a lot of interest in China,” said Ho-Yin Lee, who heads Asia technology and communications investment banking at Citigroup Inc. “Middle Eastern investors are looking at companies that are market leaders in their respective sectors and willing to collaborate.”
Geopolitical tensions have been less of an issue for Middle Eastern funds seeking to invest in China, according to Samuel Kim, chairman of mergers and acquisitions in APAC at Deutsche Bank.
“We have seen a number of situations where Middle Eastern sovereign wealth funds have played an important role facilitating acquisitions,” said Kim, who’s also chief country officer for Deutsche Bank in South Korea.
Political ties are strengthening too. Chinese Premier Li Qiang said earlier this month that the country is willing to deepen cooperation with Saudi Arabia in oil and gas, petrochemicals and infrastructure. Chinese enterprises have also been encouraged to invest in Saudi Arabia in areas including new energy, information and communication, and digital and green economies.
Government officials, investment bankers, lawyers and Asia-based consultants are spending more time meeting with Middle Eastern investors touring China and the rest of APAC looking for opportunities to expand.
For Hong Kong, which has been reliant on Chinese companies listing in the city and on the US and Europe in terms of funding, greater interaction with the Middle East is positive as it helps diversify opportunities and sources of funding, said Louis Lau, a partner at KPMG’s capital markets advisory group in China.
Aramco Is Shopping
Saudi Aramco has been busy in China. The world’s largest crude oil exporter is considering investing in more chemical plants in the country, on top of deals it has already clinched to secure long-term buyers for its crude. Aramco has been eyeing a 10% stake in China’s Hengli Petrochemical Ltd. and similar deals with two other Chinese companies. It closed a $3.4 billion deal for a stake in Rongsheng Petrochemical Co. last year, its largest foreign acquisition ever.
Aramco is also looking beyond oil and petrochemicals. In June, it announced plans to take a 10% stake in an automotive joint venture with France’s Renault SA and China’s Zhejiang Geely Holding Group Co., a transaction that valued Horse Powertrain Ltd. at roughly $8 billion.
Saudi Arabia and others are ramping up efforts to diversify away from oil and into sectors such as clean energy, industrials, technology, tourism and sports.
The long-term goal to reshape their economies will likely guide their investment strategies in places such as China, according to Simon Rahimzada, a Dubai-based partner at law firm Ashurst. Some wealth funds may invest in businesses that also want to expand in the Middle East so that they can promote an exchange of know-how, Rahimzada said.
The increasing investment activity into China has also had some side effects. Middle Eastern funds have also been faced with greater scrutiny on US deals from the Biden administration as part of a broader pushback on entities perceived to have close ties with Beijing, Bloomberg News has reported.
Money Flows
“Not only have we seen the quantum of capital deployed from the Middle East to be much larger in recent times, but the focus is increasingly diversification into Asian economies, including China,” said Lei Li, Asia head of industrials investment banking at Citigroup.
Logistics, consumer and health-care assets have also drawn Middle Eastern money. DP World, a leader in global supply chain solutions based in Dubai, this year acquired Cargo Services Seafreight, a deal that led to a controlling stake in Hong Kong-listed CN Logistics International Holdings Ltd. Mubadala and CBC Group bought UCB SA’s mature neurology and allergy business in China in a $680 million deal.
Mubadala and QIA are also among investors considering McDonald’s Corp.’s China business, Bloomberg News has reported. QIA and Saudi Arabia’s PIF have been approached as potential co-investors to join a consortium seeking to acquire Hong Kong-listed logistics real estate firm ESR Group Ltd., people familiar with the matter have said.
Their interest has also been linked to technology including chipmaking and artificial intelligence. An arm of Saudi Aramco joined the latest financing round for startup Zhipu AI, becoming the first known foreign firm to back a major Chinese player in generative AI.
Electric-vehicle battery manufacturing and data centers are also areas of interest, said Dean Moroz, a partner at Ashurst based in Abu Dhabi. A compelling investment return is still the paramount consideration, he added.
Beyond China
It’s not just China — the wider APAC region has seen a substantial bump in capital flows from the Middle East, Deutsche Bank’s Elalingam said.
ADIA has been active in Southeast Asia and India. The fund is part of a group of investors seeking to take Malaysia Airports Holdings Bhd. private, while it was also a coinvestor in Columbia Asia Healthcare Sdn.’s acquisition of hospital operator Ramsay Sime Darby Health Care Sdn. In India, it has bought an additional stake in billionaire Mukesh Ambani’s rapidly expanding retail unit.
In Japan, the other Asian market where dealmaking activity is booming, Mubadala-owned Fortress Investment Group made an offer for Joban Kosan Co., the operator of the Spa Resort Hawaiians leisure facility in Fukushima prefecture.
“They are smart and sophisticated investors, and bankers need to present them solid investment opportunities to be able to catch their interest,” Elalingam said. “They like to get involved in deals from the beginning and not be seen as a last resort to simply help get things done.”
--With assistance from Yuji Okada, Elffie Chew, Nicolas Parasie, Emily Cadman, Baiju Kalesh, Matthew Martin, Adveith Nair and Dave Sebastian.
(Updates with reference to ADIA’s participation in Midea’s listing in second paragraph)
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