The Earth’s natural resources have been the focus of a number of mergers and acquisitions (M&A) globally during 2010. Whether it is coal, oil and gas or fertilisers, the sector has broken its own M&A activity record with deals valuing a total of $414bn so far this year, according to Dealogic. This is an 8% increase on the total value for 2009 and a whacking $20bn greater than the previous record of 2006.
The Asia-Pacific region is a major focus of this M&A activity, as the region has seen better recovery rates than its western counterparts. China and India have both increased their number of deals as target nations compared with previous years to such an extent that they now feature prominently in the top 10 countries when ranked by natural resources merger activity. Statistics from Dealogic show that India alone has moved from 28th position in 2008, with deals valued at $1.1bn, to seventh in 2010, with deal values of $11bn.
Coal headlined a number of these Asian deals: last year's acquisitions included that of PT Berau Coal by PT Recapital Advisors. PT Berau Coal is the fifth largest coal producer in Indonesia, a country that supplies the carbon substance to north Asia, India and even China.
Despite its ranking, India’s coal producers have not attracted as much inward FDI as many would want, due to the country's bureaucratic barriers to foreign investment. However, the attention given to state-owned Coal India by foreign investors when it listed in October 2010 at a value of $3.4bn was indicative of the passion for these essential, natural elements.
In the other direction, KNOC, the South Korean national oil company, recently launched a hostile takeover of UK oil and gas firm Dana Petroleum, which is now all but complete. KNOC’s aggressive interest in Dana is also indicative of Asian government policy (particularly Chinese) to push investment and acquisition in natural resources as domestic needs fuel demand.
Lawrence Yeo, chief executive officer of Asiabiz Strategy, a Singapore-based consultancy, says: “This [Asian investment in resources] is a very strong trend for the next three to five years. There is sufficient domestic demand in the three regional plates, China, India and Indonesia, that it doesn’t really matter what the rest of the world is doing. The trend is towards more unique greenfield investments by small and medium-sized companies. Independent power producers are also attractive.”
These factors explain why there is considerable intra-regional investment in the Asia-Pacific region, a process that developed over 2009 and has continued since then. According to the UN Conference on Trade and Development’s World Investment Report 2010, intra-regional FDI in south, east and south-east Asia now accounts for 50% of the region’s total FDI.
China, of course, remains the dominant Asia-Pacific investor, with examples such as China Minmetals eating up the bulk of Australian mining company OZ Minerals for $1.2bn in 2009. But India has been active too: Indian interests in Australian resources are estimated at $9bn. In August, India's Adani Mining bought Galilee Coal Tenement of Queensland, a project with a potential capacity of 60 million tonnes of coal per year, for $3bn. Clearly, the natural look is in for the foreseeable future.