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China's Spending On Sports Properties May Not End With Liverpool

When John Henry bought Liverpool in '10, China’s currency was trading at 6.7 yuan to the dollar and "heading higher," according to Tom Mitchell of the FINANCIAL TIMES. It would eventually peak in early '14 at six yuan to the greenback. It is doubtful that Henry "gave much thought to how many redbacks it took to buy a greenback." But if he does end up selling Liverpool for a "pretty penny" to a consortium led by a Chinese investment group, it "will be in part because of what has happened to the renminbi over the past two years." On Monday, China’s central bank "set the renminbi’s dollar 'reference rate,' around which it is allowed to move" plus or minus 2% in daily trading, at 6.6652 -- almost 11% below its '14 peak and back where it was when Henry "diversified from baseball into English football." While Liverpool’s prospective new owner, China Everbright Group, and other Chinese investors "could once reap profits by borrowing US dollars to purchase renminbi assets, the 'carry trade' now works better the other way, giving further impetus to the torrent of money pouring out of the world’s second-largest economy." According to PwC, China Inc.’s outbound mergers and acquisitions reached $134B over the first six months of '16, compared with just $30B "in the same period last year." And there is "a lot more money" where that $134B came from. Michael Buckley, an M&A banker at Citic Securities in Beijing, said that transaction approvals from China’s foreign exchange regulator "used to be routine." Now it can take "one or two months for the necessary paperwork to clear." As a result, sellers like to have Chinese buyers in the mix "to force other bidders higher but can be reluctant to close deals with them." Buckley: "Many Chinese companies are used as stalking horses in bid processes. I have been a victim of this and it’s quite painful" (FT, 8/23).

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