Chinese M&A interest in Australia picks up as political ties thaw

By Scott Murdoch

SYDNEY, Dec 7 (Reuters) - Chinese companies are showing renewed interest in Australian acquisition targets including natural resources and agricultural assets, as hopes swirl that a diplomatic thaw between the two countries will yield more deals next year, bankers and lawyers said.

In recent weeks, some banks have received mandates from Chinese companies looking at Australian assets, while other dealmakers say they are getting inbound inquiries from cashed-up potential buyers in the world's second-largest economy.

The signs are still tentative, however, and Australia's foreign investment framework would likely shut Chinese buyers out of sectors such as telecoms, defence and critical minerals that are considered sensitive to national security.

"We are starting to see green shoots in Chinese inbound M&A interest, but we are still not anywhere near pre-pandemic levels," said Lawrence Mendes, partner at global law firm Baker McKenzie.

Australia's six-month-old Labor government is moving to repair strained diplomatic relations with China after clashes in recent years over trade, influence in the South Pacific, and the origins of the COVID-19 pandemic.

Australian Prime Minister Anthony Albanese met Chinese President Xi Jinping last month on the sidelines of the G20 summit in Indonesia, raising expectations of closer bilateral ties.

In a sign of renewed Chinese interest in Australia, China's Tianqi Lithium Corp said on Tuesday it was exploring investment opportunities in Australia's burgeoning battery minerals sector.

Mendes said his law firm had been fielding queries from Chinese firms on the Foreign Investment Review Board's (FIRB) approval conditions and timelines.

He added, however, that the regulator's approach will have a "significant impact" on Chinese investors' appetite.

Australia unveiled the biggest shakeup of its foreign investment laws in almost half a century in 2020 to ensure greater scrutiny of companies when bidding for sensitive assets, regardless of the size of the deal.

M&A activity between China and Australia reached a peak a decade ago when Chinese investors spent $10.3 billion in 2013, with targets ranging from dairy farms and commercial property to cinema chains.

But political ties became strained in recent years and deals dried up - Chinese investment in Australia fell by more than 50% to about A$12 billion ($8.86 billion) over the past four years.

The head of Australia's FIRB, Bruce Miller, told a conference last month that he expected a pickup in investment applications from China after they had become scarce over the last three to four years.

Any investment, however, is likely to target assets in non-sensitive sectors after major blowback in the past when Chinese companies attempted to buy projects linked to Australia's national interests.

Australian firms in the natural resources and agricultural sectors could be targets for Chinese investments, Mathew Hodge, the director of equity research for Australia and New Zealand at Morningstar, said.

"Projects that are capital intensive and large scale may be the focus of Chinese investment, provided it's not of strategic, national interest," Hodge said. (Reporting by Scott Murdoch; Additional reporting by Praveen Menon; Editing by Sumeet Chatterjee and Edmund Klamann)