A lossmaking Chinese miner is snapping up a British computer games developer in a $300m deal that encapsulates the spirit of China’s frenzied — and often incongruous — debt-fuelled shopping spree.
The deal, which will see a fantasy games developer bed down with iron ore miner, comes as insurer Anbang gatecrashes a $13bn deal for Starwood Hotels and Resorts; itself barely 24 hours after sewing up a $6.5bn bid for Strategic Hotels & Resorts.
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A total $102bn of outbound dealmaking has been announced from China so far this year, according to Dealogic, already almost as much as the record $106bn spent in 2015.
Shandong Hongda, the iron ore miner, may be putting down less cash, but the $300m price tag is six times its forecast net loss for last year.
After beginning life as a village-owned iron ore mine in the early 1990s, it is bolting on Jagex, UK developer of online role-playing game RuneScape.
Incongruous diversification is also part of the zeitgeist. Old industry, such as steel mills and miners, are weighed down by overcapacity and debts and turning to new areas — from pig farming to property to finance.
For two decades investment surged into China, initially capitalising on cheap labour, and then in an effort to tap the flourishing Chinese market that was growing at near double-digit rates annually.
But China’s slowing growth and the mounting pressure of debts accumulated during the boom has turned the tide, and Chinese corporations are seeking the lower but relatively more stable returns of investments abroad.
Just as RuneScape players battle monsters in the realm of Gielinor, Shandong Hongda has found itself at the mercy of forces beyond its control. Flush with cash during the commodities boom, Chinese miners expanded aggressively, then saw margins shrink as a slowdown in growth pummelled ore prices.
Chinese steelmakers have turned to cheaper, better quality iron ore, further damaging returns for domestic miners. By the year-end, Chinese miners may supply only about 10 per cent of the iron ore used by domestic steelmakers, according to estimates from market pricing service Platts.
Shandong Hongda’s Liang Xiuhong and other shareholders have borrowed heavily in the domestic shadow banking sector, pledging the company’s shares against wealth management products on at least three occasions, according to documents seen by the Financial Times.
It warned in January it could report Rmb350m ($55m) in losses for 2015.
