In the news: Hony Capital buys PizzaExpress, three telecom companies form a JV and the WTO debates the role of SOEs in global trade

Hony Capital buys PizzaExpress

Chinese private equity firm Hony Capital bought restaurant chain PizzaExpress for US$1.54 billion from London-based private equity firm Cinven, which owns Gondola Group. This marks one of the largest European restaurant deals in the past five years. Hony Capital is backed by Legend Holdings and is among the few Chinese private equity funds that have been making significant outbound investments. Linklaters is advising Hony Capital and Freshfields is advising Cinven.

Sources:
The Wall Street Journal
The Asian Lawyer

Hony Capital recently partnered with Suning Commerce Group to purchase PPLive and also joined TPG Growth and other entities in purchasing stakes in STX Filmworks, which was Hony Capital's first investment in the US media industry. It is also involved in the privatisation of Giant Interactive, one of the most significant private equity deals since Focus Media last year. The market in China has matured and firms are getting increasingly active in venture capital, private equity and pre-IPO investments, as well as take-privates (where the private equity firms show more sophistication) and LBOs, another sign that the market model has matured. The fact that Hony Capital is taking on a huge international deal like PizzaExpress is the biggest indicator yet.

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China's three carriers form telecoms tower firm

The three state-owned wireless carriers China Mobile, China Unicom and China Telecom will jointly establish a telecommunications tower company called China Communications Facilities Services Corporation with a registered capital of Rmb10 billion (US$1.6 billion). China Mobile (the world's largest mobile carrier) will hold 40%, China Unicom will hold 30.1% and China Telecom will hold 29.9%. The tower company will construct, maintain and operate telecommunications towers.

Source:
Reuters

The three carriers in China have faced declining revenues as mobile users switch from using SMS and voice calls to mobile internet messaging and calling services that rely on data such as WeChat and Viber. The expensive rollout of 4G networks also took a huge toll on the companies, as each had to build its own telecom towers to increase network coverage across the country. The joint tower company, which has been long awaited by industry analysts, could reduce each of the three carriers' individual costs. Sharing the infrastructure would increase network coverage and quality, improve investment efficiency and reduce unnecessary construction.

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WTO rules against US on China's state-owned companies

Judges of the World Trade Organisation (WTO) have ruled against the US in a dispute over the punitive tariffs it imposed on steel and other imports from China and India. For years the US has tried to challenge Chinese SOEs, claiming they benefit from subsidies that unfairly reduce their production costs and that such government subsidies are banned by the WTO. The US argument presents the difficulties and complexities of China's industrial structure integrating with a global trading system that is based on the idea of corporations being clearly separated from government.

Sources:
Financial Times
The New York Times

The judges reaffirmed a 2011 judgment that provided a narrow definition of a government entity – they did not consider SOEs “public bodies” because they were majority-owned by governments and instead told the US to prove that SOEs also performed “government functions” or exercised “government authority”. The WTO stated the US failed to provide sufficient evidence to back these claims. In a separate case, the WTO rejected the US argument that supplies from India's state-owned iron ore and coal mines allowed the country's steel exporters to be treated as public bodies. MOFCOM welcomed the rulings, though the case is subject to appeal. Addressing SOEs is one of the most significant issues facing international trade and will continue to be a big focus in trade negotiations.

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