Developed economies looking good for energy mergers

Canada, Australia and the United States are set to be the most popular destinations for mergers and acquisitions by Chinese energy companies, a senior executive at RBC Capital Markets said on Friday.

"China's economy is slowing but there is growing demand for overseas oil, gas, metal and mining assets, and we expect to see more M&A deals in mature markets such as Canada, Australia and the US, " said Ken Wang, head of natural resources at RBC Capital Markets in Asia.

Wang said Canada has abundant natural resources and regards China as a huge market. It also has a successful track record. CNOOC Ltd's $15.1 billion takeover of Canadian oil and gas company Nexen Inc, in which RBC served as the financial adviser, may be a pointer of things to come.

According to Wang, emerging markets, including Africa and Mongolia, are very attractive to Chinese investors, but mature markets are of greater interest. The investment in Africa should be seen as a long-term involvement.

Russia is also a good choice, and Chinese State-owned enterprises are well-suited to do deals there.

State-owned enterprises are still the main players in M&A deals in the natural resource sector abroad because of their capabilities and funds. But private companies are also encouraged to seek opportunities and will find it easier to get loans.

A commodities downturn has made resource assets much cheaper than two to three years ago and the continued currency appreciation also creates opportunities, said him.

Although the number of deals dropped unexpectedly, the value of outbound M&As by Chinese mainland companies grew on an annual basis by 54 percent to reach a new record high of $65.2 billion in 2012, according to a report by PwC released this year.