A FEW hours after China’s Bohai Leasing Co. raised its offer and entered exclusive talks to buy Irish aircraft leasing firm Avolon Holdings Ltd., China shocked global markets with an unexpected yuan devaluation.

    The move, which last week saw the Chinese currency plunging almost 4 percent against the U.S. dollar in the space of two days, makes overseas mergers and acquisitions more expensive in local currency terms for Chinese buyers.

    Bankers say the yuan’s weakness could make Chinese suitors less aggressive when bidding for foreign targets but won’t stop companies such as Bohai Leasing from pursuing these assets as they seek to diversify risk in light of a slowdown at home.

    “The world is becoming more and more specialized and if you’re not able to buy outside your terrain, you’ll be at a disadvantage,” said Bharat Bhise, CEO of Bravia Capital, which advised Bohai Leasing on the US$2.64 billion bid for Avolon.

    “The benefits are so much higher, that a small [price] increase isn’t going to make a difference.”

    Like other companies with global ambitions, big players such as ChemChina, Fosun International or Bohai Leasing have funding reserves in U.S. dollars and euros for foreign takeovers, bankers and industry players say.

    These firms, which sometimes enter currency hedging agreements when announcing a deal, are also being encouraged by China’s government to continue to purchase assets abroad.

    “Our strategy hasn’t changed as we have access to multiple capital sources,” said a director at a Chinese conglomerate that was recently involved in a number of large overseas takeovers.

    “Currency exchange is only one of many factors to take into account when you negotiate a deal overseas. I don’t think Chinese firms will put their merger and acquisition plans on ice,” said the executive, who could not discuss the strategy publicly. (SD-Agencies)