China M&A boom presents unique hedging headaches

Crackdown on ‘fake’ deals adds to risk in contingent hedges

chinese-dragons-gold
Here be dragons: uncertainty is pushing up the price of deal-contingent trades

In late November, China's foreign exchange agency released a three-line statement saying it was set to increase its scrutiny of outbound merger and acquisition (M&A) transactions in an attempt to combat "fake deals", which are put together simply to move renminbi offshore to avoid an anticipated depreciation in the Chinese currency.

The State Administration of Foreign Exchange (Safe), which needs to approve large forex transactions required for the purchases, said it will look into outbound deal

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