JAPANESE firms may become a more important force in dealmaking next year as they seek to buy growth prospects elsewhere in the world and as China’s crackdown on capital outflows prevents some Chinese companies from making foreign acquisitions, bankers and lawyers said.

    Facing tepid prospects at home after decades of stagnation amid a shrinking population, Japanese companies had spent US$93 billion overseas this year, up to Dec. 19, little changed from a record US$96 billion in all of 2015, but up from just US$51 billion in 2013, Thomson Reuters data show. Chinese companies have spent US$217 billion so far in 2016.

    With Japanese companies hoarding a record US$3.2 trillion in cash, according to government data, outbound acquisitions are expected to maintain a fast pace next year, the bank and law firm sources said.

    And while the recent weakening of the yen against the U.S. dollar will make American acquisitions more expensive in yen terms, it does mean that Japanese companies will tend to be earning more of the Japanese currency from overseas assets.

    Among recent deals, Asahi Group Holdings this month beat rivals, including China Resources, to buy Anheuser-Busch InBev’s eastern European beer brands for 7.3 billion euros (US$7.6 billion).

    China’s State Administration of Foreign Exchange is vetting transfers abroad worth US$5 million or more, and in particular is increasing scrutiny of major outbound deals to curb capital outflows that are hurting the value of the yuan, sources said.

    “Japanese buyers have a low cost of capital, strong cash balances and a strong appetite to diversify out of their home market,” said Mayooran Elalingam, Deutsche Bank’s head of Asia-Pacific mergers and acquisitions in Hong Kong. “At the same time, they do not have the regulatory or political constraints of a Chinese purchaser.”

    Japan’s cashed-up insurers are likely to step up their aggressive hunt for overseas businesses, the bankers said. For example, Meiji Yasuda, Japan’s third-largest private sector insurer by assets, is attracted to Australia and New Zealand Banking Group’s life insurance and wealth businesses, said a source close to the unlisted Tokyo-based company.

    Japanese beverage makers could buy abroad, said an merger and acquisition banker at a European investment bank, citing Suntory Holdings Ltd. and Kirin Group Holdings Ltd. Kirin and Asahi Group Holdings are among investors who have expressed an interest in buying stakes in Saigon Beer Alcohol Beverage Corp., or Sabeco, Vietnam’s biggest brewer, and its smaller rival Habeco.

    Kirin declined to comment. Suntory said it was not considering any specific deals and was instead focussed on integrating its 2014 purchase of Beam, the maker of Jim Beam bourbon whiskey among other alcoholic drinks.

    An Asahi spokesman said it was “looking with interest” at Sabeco and Habeco.

    The Japan-China rivalry may also play out in the natural resources sector next year, said Alexis Papasolomontos, a merger and acquisition partner at law firm Herbert Smith Freehills. The sector is traditionally favored by China but of growing interest to Japan.

    Japanese buyers spent US$9 billion in the energy and materials sectors this year, up from US$5 billion last year, Thomson Reuters data show. China, focussed on acquiring energy and food assets, splurged a record US$87 billion in that sector this year versus US$16 billion last year.

    Still, Japan’s record with overseas acquisitions has been spotty. Toshiba Corp. said Tuesday it was considering booking a goodwill impairment loss of several hundreds of billion yen on a U.S. nuclear power acquisition made by its Westinghouse division, sending its stock plunging.

    Japan’s Nomura Holdings Inc., which acquired Lehman Brothers’ Asian and European operations following the collapse of the U.S. investment bank, announced a painful restructuring earlier this year after losing some US$3 billion overseas in six years.

    Century Tokyo Leasing was among the companies that lost out to a unit of China’s HNA Group in a battle to buy a CIT plane leasing unit, according to people familiar with the matter. In manufacturing, the sale of General Electric Co.’s appliance unit generated interest from Japanese buyers but they didn’t compete seriously against a subsidiary of China’s Qingdao Haier, which won the auction.

    “We expect to continue to see a lot of activities in every sector,” said Yoshihiko Yano, head of Japan merger and acquisition at Goldman Sachs. “Given the decreasing population and aging society, outbound merger and acquisition for growth outside Japan is inevitable for Japanese companies.”

    Japanese companies have been drawn to the U.S. market because its economic growth has been generally higher than Japan’s, and as the American population rises. U.S. President-elect Donald Trump’s pledges to cut business taxes, spend on infrastructure and slash business regulation means the appeal of the U.S. market is likely to increase.

    “America’s appeal won’t change for Japanese firms,” said Shinsuke Tsunoda, global head of merger and acquisition at Nomura Securities Co.

    Underscoring Japan firms’ faith in the United States under Trump, SoftBank Group Corp. head Masayoshi Son this month met Trump and pledged to invest US$50 billion in U.S. startup firms.

    Japanese companies may also gain an edge over their Chinese rivals because of Trump’s anti-China rhetoric, lawyers said.

    (SD-Agencies)