With the Chinese government having dramatically clamped down on various forms of capital flight in recent months (incidentally, a key driver for the surge in the price of bitcoin over the past year), Chinese residents have been coming up with increasingly more innovative forms of capital flight. One, noted previously, has been the unprecedented scramble to purchase foreign companies with no regard for price. After all, if the only intention is to have a legal basis to ship funds offshore, and debt investors willing to foot the bill, why not.
The chart below has shown the dramatic surge in leverage at some Chinese companies who have recently unleashed this dramatic M&A spree.
The M&A scramble became so bizarre that a month ago we reported on the story of a money-losing Chinese miner set to purchase a British computer games developer in a $300m bizarro deal that encapsulates the spirit of China’s frenzied, and often incongruous, debt-fuelled shopping spree. Surely synergies abound there.
We then showed 8 things the Chinese are scrambling to buy in America as a legitimate conduit to park capital in the US, although that pathway may be slowly shutting now that Congress has gotten far more picky in selecting which Chinese acquisitions it will greenlight (and the media is actually exposing the vested interest behind these deals like the pulled Anbang attempt to acquire Marriott Hotels).
And then there was the “lost arbitration” pathway, in which a Chinese company purposefully company violates a contract with a fake US shell company and then quickly loses an arbitration in the United States, so as to have grounds of transferring funds offshore.
Today, we find the latest, and perhaps most innovative attempt to circumvent capital controls yet when a group of Chinese investors has offered to buy AC Milan football club, one of former Italian prime minister Silvio Berlusconi’s most cherished assets. The offer values the club at around 700 million euros including debt, one of the sources said.
Berlusconi, whose family holding company Fininvest owns the Serie A club, has been looking for a buyer for a minority stake for more than a year without reaching a deal. He may have finally found a willing buyer who is happy to pay whatever price Berlusconi is looking for.
“Curiously”, just like in the case of Anbang, the identities of the Chinese investors, who first expressed interest in buying the club last year, were not immediately clear.
“The offer is €700 million for the whole club, including debt. They want 70 percent now and the rest in a year or a year and a half,” the first source said according to Reuters.
Fininvest declined to comment. The second source said formal talks can only begin with the approval of Berlusconi, who is reluctant to sell a majority stake but could change his mind.We are confident that after hiking the price to €1 billion, which to the Chinese “investors” will still be peanuts and not a concern, he will gladly accept.
The club had €188.5 million euros in debt in 2015, according to annual accounts approved by its board on Thursday, so Fininvest could cash in around €500 million euros if the deal were to go ahead.
In the off chance that the Italian government steps in and blocks the deal, we are eagerly looking forward to finding out just what asset class the Chinese will rush into next, because the math is simple: there is about $30 trillion in inert deposits sloshing around Chinese banks, and the owners of those assets – knowing quite well what is coming – are desperate to get their cash out of the country no matter the price.
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