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China Capital Confidence Barometer - The capital agenda - EY - China

China Capital Confidence Barometer, March 2012 - August 2012

The capital agenda

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Understanding your capital agenda – key highlights

Forty-four percent of Chinese respondents shift their focus to optimizing capital over the next 12 months. All executives see themselves as having moved on from needing to preserve capital from six months ago.

Do you plan to refinance loans or other debt obligations in the next 12 months?

How do you expect your debt to capital ratio to change over the next 12 months?

Which statement best describes your organization’s focus over the next 12 months?

Which statement best describes your organization’s focus over the next 12 months?

% Focused on Growth

If you have excess cash, which of the following will be your focus over the next 12 months?

Do you expect your company to pursue acquisitions in the next 12 months?

Expectations to pursue an acquisition

What do you expect the price/valuation of M&A assets to do over the next 12 months?

Number of deals

Likelihood of closing deals

Is your company likely to make an asset sale/ divestments in the next 12 months?

12 Month Outlook

Cross border activity in the Asia-Pacific region is increasingly perceived as a barometer for the global community’s economic health.

In the 6th global survey, we found economic outlook, optimism, business health and willingness to divest or engage in M&A activity varied by market across Asia-Pacific.

Where are companies planning to invest over the next 12 months?

1. China 6. Canada
2. India 7. UK
3. United States 8. Germany
4. Brazil 9. Australia
5. Indonesia 10. Thailand





Forty-four percent of Chinese respondents shift their focus to optimizing capital over the next 12 months. All executives see themselves as having moved on from needing to preserve capital from six months ago.

Chinese executives report their companies are less likely to pursue acquisitions over the next 12 months than they were six months ago.

Access to capital: cash levels remain strong

Chinese respondents take a more circumspect view of credit conditions globally, with just 11% seeing improvement in April 2012, and the majority seeing stability.

Yet most Chinese companies remain comfortable financially, with just 16% planning to refinance loan or debt obligations in the next 12 months, a drop from six months ago (30%). A majority (70%) have no plans to use debt to finance deals over the next year.

Chinese companies are also far less likely to view the excess working capital of an acquired company as a source of deal funding (21%) than their global counterparts (45%). 


 

Growth: focus on stability theme

Given Chinese companies’ concerns over the impact of short-term volatility in local markets and slowing growth, it is perhaps not surprising that Chinese companies remain more focused on the status quo over the next year with 64% planning to maintain stability over that period.


 

Nevertheless, Chinese respondents were nearly as likely as their global peers to opt for using excess cash to finance organic growth, and they were more likely than global executives to use extra cash to finance M&A.


 

Mergers and acquisition: a holding pattern

Chinese executives report their companies are less likely to pursue acquisitions over the next 12 months than they were six months ago, with 22% of Chinese respondents saying they expect to pursue M&A in the next year.

 

 

This is due to:

  • Valuation gap
    Nearly three-quarters of Chinese executives said overestimation of the strategic value of a deal or excessively high valuations was the most significant reason for a deal not meeting expectations. As a result, 78% of Chinese respondents said the valuation gap is the primary reason for not pursuing M&A in the next 12 months.
  • Concerns about asset prices
    Chinese views about asset prices underpin the reluctance of Chinese companies to anticipate an acceleration of M&A activity over the next 12 months. Sixty-three percent of Chinese executives said they expect prices to decrease over the next year, and just 15% expect an increase. 

 

 

 

  • Slim pickings
    Half of Chinese respondents said they were negative about the number of deals available at the global level. Similarly, just 8% of Chinese executives said they were positive about the likelihood of closing deals.

 



Divestments not on Chinese companies’ agenda

Most Chinese respondents continue to see little likelihood of making divestments in the next year with just 9% expecting to do so, down from 21% six months ago. The majority of those planning divestments are motivated by enhancement of shareholder value or focus on core assets. This is in contrast to six months ago where shedding underperforming assets was ranked the most significant priority.

 


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Understanding your capital agenda - key highlights

Forty-four percent of Chinese respondents shift their focus to optimizing capital over the next 12 months. All executives see themselves as having moved on from needing to preserve capital from six months ago.

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Global Capital Confidence Barometer: Asia-Pacific

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