As oil prices tumbled to record lows, falling almost 60% over 2015, Asia-Pacific remained one of the world’s busiest markets for energy mergers and acquisitions (M&A). M&A among regional and international energy majors reached near-record levels in 2015, with 200 deals completed, marginally short of the 222 in 2014.

Eversheds, a leading international law firm, in collaboration with Mergermarket, the leading independent M&A intelligence service, today released “A towering presence: Asia-Pacific energy M&A”, the first issue in a thought-leadership newsletter series, tracing the shifting investment trends in the Asia-Pacific energy sector. An exclusive interview with Eversheds partners Charles Butcher, Corporate, and Jae Lemin, Banking, presents expert insights on the latest industry trends shaping the regional markets for oil and gas corporations, as well as those in the renewable energy space.

Driven by ongoing uncertainty toward global market conditions, energy corporates have been rationalizing their operations in the region. With markets unsure how long depressed prices will continue, producers are seeking to cut costs through restructuring and, in some cases, widespread divestment programs.

On the trends having the greatest impact on Asia-Pacific energy M&A today, Butcher identifies oil price volatility as a vital factor. According to Butcher, “The big question on everyone’s minds is: How low will these prices go, and what are the energy majors doing in terms of asset sales or expansions to maintain the balance sheet or even eke out growth?”

Another key trend playing into the dynamics of energy investment is the rising interest in renewables, buoyed by the emergence of new technology, and particularly as renewables begin to replace fossil fuel’s share of the regional energy mix.

Evaluating this trend, Lemin says, “Throughout Asia, government policies and energy regimes are being rolled out which are supportive of renewables tech – although the effectiveness and enforcement remain to be seen. We know that investors are concerned about how committed governments are to current feed-in-tariff levels, which will impact investment trends now and going forward.”

Analysing the pool of international investors using M&A to enter the Asia-Pacific energy market, Butcher points out that for buyers from the private equity and corporates categories, “where the search for yield is critical, these investors are favouring projects toward the end of their construction period. In this way, they are avoiding participation in the initial stages of project development where the risks and obstacles surrounding concession rights and other early stage processes may be higher.”

Delving deeper into the rationale for PE investment in energy, Butcher says, “For energy M&A, while the sector hasn’t always been a classic fit for PE, there are examples of PE firms completing buyouts and repackaging these assets with other projects for trade sale exits to global and regional energy companies. More advanced stage renewables projects, for instance, may present packaging opportunities where cash flows are supported by favourable and sustainable incentives.”

In an outlook for renewables investment in 2016, Lemin highlights the importance of international capital, expertise and experience to the region, and forecasts tailwinds for the sector.

Elaborating on this, Lemin asserts, “Storage solutions will begin to address intermittency risk, and large countries such as China and India are reaching grid parity and there is a general (although not blanket) opposition among international banks towards financing new-build coal-fired power stations. To what extent will those tailwinds translate into significant deal flow in the renewables sector in Asia remains to be seen, although I think a lot of participants are asking this question.”

Highlights from “A towering presence: Asia-Pacific energy M&A”:

  • According to Mergermarket data, 2015 closed with 200 M&A transactions completed in the Asia-Pacific region, with 85 (43%) involving Chinese companies, at a total value exceeding US$56bn, with the country’s demand for oil due largely to ongoing urbanization and rising household incomes.
  • Australia and New Zealand, with 28 and five deals respectively, together contributed to 17% of Asia’s overall deal count, amounting to a total transaction value of US$20.5bn.
  • While the deal count in Southeast Asia equaled Australasia’s transaction volume (33), the sub-region’s aggregate deal value of US$5.5bn was well behind that of Australasia.
  • Chinese-led cross-border values topped US$10.8bn through 23 deals, up from US$4.1bn through 22 deals in 2014.
  • Private equity investment in the Asia-Pacific energy space totaled US$11.9bn in 2015, with 17 buyouts – the best year for Asian energy buyouts since 2007.

The full newsletter is available by clicking here.

About Eversheds

Eversheds LLP and its world wide offices have over 4,000 people who provide services to the private and public sector business and finance community. Access to all these services is provided through 55 international offices in 28 jurisdictions. Eversheds combines local market knowledge and access with the specialisms, resources and international capability of one of the world's largest law firms.

Eversheds has offices in Hong Kong, Shanghai, Beijing and Singapore. The firm is recognised as one of the leading international full service firms in Asia.

We provide a broad range of services including banking and finance, compliance and regulatory, corporate M&A, debt and equity capital markets, dispute resolution, employment, IP/IT, litigation, private equity and restructuring & insolvency.

Eversheds clients includes State-Owned Enterprises, major multinational organisations, global and regional banks and financial institutions, professional services groups, government bodies and regulators.

Our understanding of Asian culture and the global environment in which businesses operate, coupled with a practical commercial outlook, enables us to provide cross-border advice on regional and global transactions and disputes.

Eversheds has recently launched the Eversheds Asia Pacific Alliance (EAPA), covering over 40 jurisdictions in Asia Pacific. EAPA gives clients access to the combined knowledge of our relationship firms across the region.

About Mergermarket and Remark

Mergermarket is an independent Mergers and Acquisitions (M&A) intelligence service with an unrivalled network of dedicated M&A journalists based in 62 locations across the Americas, Europe, Asia-Pacific, the Middle-East and Africa. Unlike any other service of its kind, Mergermarket specializes in providing forward-looking origination and deal flow opportunities integrated with a comprehensive deals database – resulting in real revenues for clients. Visit the website by clicking here.

Remark, the publishing, market research and events division of Mergermarket Group, offers a range of services that give clients the opportunity to enhance their brand profile and to develop new business opportunities. Remark publishes more than 50 thought leadership reports and holds more than 100 events across the globe each year, which enable its clients to demonstrate their expertise and underline their credentials in a given market, sector or product.

Remark is part of Mergermarket Group. Find out more by clicking here.