Asian oil and gas companies thirsty for foreign acquisitions: Pimco
After several blockbuster energy deals last year, Asia's state run oil and gas companies are still on the prowl due to a rising energy deficit and dwindling reserves at home.
According to Pimco's February 2013 Asia Credit Perspectives, there may even be more money for bigger deals.
"[We] expect Chinese state oil and gas companies to pursue more overseas acquisitions – and with government support. Pricing deregulation in the downstream sector, if successful, could also provide a significant boost to their financial profile," says the report.
Only last November documents obtained by a Canadian newspaper revealed that two of China's biggest state-owned energy corporations, CNOOC and Sinopec, had approached a Canadian federal minister to express their interest in acquiring stakes in the country's potash and fertilizer sectors.
Earlier this month, U.S. regulators approved a $15.1 billion takeover of Canadian oil and gas company Nexen’s (TSX,NYSE:NXY) by China's state-owned CNOOC Ltd.
This was the third Chinese deal to be ratified by the Committee on Foreign Investment in the U.S. (CFIUS) in recent months, and follows clearances granted for BGI-Shenzhen’s bid for Complete Genomics, and Wanxiang Group’s bid for A123 Systems, a car batteries manufacturer.
The motivation behind all these deals is clear, says Pimco. Like many Asian countries, China is dealing with rising energy deficits and the nation's dependence on oil imports doubling over the last decade, is one clear indicator of the situation the country faces.
Governments have strong incentive to support the energy sector because it is a key driver of economic growth. This extra support is most prominent in state owned energy companies, which in turn makes them attractive to investors.
Here are other key points of the full report:
- The Asian credit market offers attractive opportunities to invest in select companies in high growth sectors, but careful credit analysis is essential.
- Our cyclical economic outlook for Asia in 2013 is unusually dependent on breakthroughs in structural policies.
- Although we continue to favor select opportunities in key sectors, in general Asian credit spreads are trading historically tight.
- Bottom-up research is critical, along with careful top-down views on shifting economic conditions, and investors need adequate compensation for taking credit risk. Some sectors and companies can grow significantly faster than their respective economies.