Firms on record M&A spree in Southeast Asia

by Hiroshi Hiyama

AFP-JIJI

Japanese firms have spent record amounts scooping up assets in Southeast Asia this year, part of a trend that has seen Tokyo moving to boost its presence in the fast-growing region and away from China.

As Prime Minister Shinzo Abe departed Thursday for a three-day trip to some of the region’s biggest economies to tap their expanding middle class, figures show Japanese firms in 2013 have already spent a record amount on mergers and acquisitions.

Rising wages in China and the Senkaku Islands territorial dispute that has infected bilateral trade has also taken the sheen off the world’s No. 2 economy as an investment destination, analysts said.

Japanese firms have spent a staggering $8.2 billion (¥820 billion) on M&As in Southeast Asia so far this year, already a record with five months to go and well above the $614 million at the same point in 2012, data provider Dealogic said.

The figure easily outstrips the previous full-year record of $7.6 billion, set in 2006, it added.

Two deals helped inflate the figure: Mitsubishi UFJ’s $5.6 billion bid earlier this month for Thailand’s Bank of Ayudhya and Sumitomo Mitsui Banking Corp.’s agreement to buy a 40 percent stake in Indonesia’s PT Bank Tabungan Pensiunan Nasional for about $1.5 billion.

But Japan also took top spot in terms of the overall volume of such regional agreements, followed closely by Thai and Singaporean firms, said Dealogic, which counts deals in its data from the moment they are announced.

The Thai bank tie-up comes after Japan’s largest lender said it had agreed to buy a 20 percent stake in state-owned VietinBank for about $743 million — the largest-ever foreign investment in Vietnam’s banking sector. Meanwhile, Toyota has said a new $230 million plant in Indonesia will start producing vehicle engines by 2016, among a string of investments in the region by the world’s biggest automaker.

“Japanese companies have been searching for places to invest in addition to China,” said Toru Nishihama, an economist at Dai-ichi Life Research Institute. “This trend is likely to continue for the next five to 10 years.”

The ramped-up shopping spree has come even as the yen has weakened against the dollar since late last year — owing to a big-spending plan by Abe to kick-start the economy — making overseas deals relatively more expensive for Japanese firms.

The 58-year-old Abe’s three-day tour to Malaysia, Singapore and the Philippines is the latest of several trips he has made with business leaders since coming to power in December, aiming to drum up new deals.

In May, he announced a development aid and loan package for Myanmar worth hundreds of millions of dollars as Japan looks to boost trade ties with the once isolated nation, which has ushered in a raft of political reforms. Tokyo also agreed to cancel about $1.8 billion of Myanmar’s debts during a visit by Abe, who was accompanied by a 40-strong delegation of leaders and executives from some of Japan’s top companies.

“The government is very proactive about it,” Nishihama said. “It has become enticing for Japanese businesses to invest in Southeast Asia, with government-affiliated financial institutions.”

Tokyo’s shift in focus comes amid tight diplomatic tensions with neighbors and key trade partners South Korea and China, where a jump in wages has driven up costs for foreign firms and made it a less appealing market to set up shop.

Relations have been frayed as Abe mused about watering down Japan’s apology over wartime aggression, while territorial disputes also tested nerves. Last year, a long-running dispute with China flared over an the Japan-controlled Senkakus chain in the East China Sea, setting off a consumer boycott of Japanese brands in China — a major export market for Japanese firms. China also claims the islets.

Hundreds of Japanese firms also have established plants in China, including major automakers Toyota Motor Corp. and Nissan Motor Co., and the dispute hurt firms’ view of the country. Nissan chief Carlos Ghosn last year warned that the automaker — the most dependent on China among Japan’s big three — would think twice about investing more in the country, where it already has several plants.

“Certainly beyond what we have decided, before going for further decisions in China, we will be very careful in assessing how much of an impact (the political situation) has on consumers’ minds,” Ghosn told the Financial Times newspaper last October, at the height of anti-Japanese sentiment in China.