By Sumeet Chatterjee and Jamie Freed
HONG KONG/SYDNEY (Reuters) - Merger and acquisitions involving Asian companies fell 39 percent in the first quarter of 2017 to $176 billion, the lowest level in nearly three years and highlighting a sharp pull back in overseas deals by Chinese firms.
While dealmaking was weak across the board with big falls in outbound deals targeting U.S. and European firms, intra-Asian M&As were by comparison relatively strong - increasing their tally of the total to 61 percent from 56 percent a year earlier, Thomson Reuters data shows. The figures reflect deals involving Asian companies excluding Japan.
The intra-Asia deals reflected sector consolidation in major Asian economies and privatization and asset sales in countries such as Singapore and Australia.
Most of the bidders were either cash-rich Asian companies or private funds keen to tap into Asia's increasing consumer demand, investment bankers said.
"M&A deal activity within the region remains robust," said Mervyn Chow, Asia co-head of investment banking and capital markets at Credit Suisse .
"While the capital controls in China may impact cross-border deals in the short term, we expect to see China investments that are strategic in nature to continue."
Nine of the top 10 Asia-Pacific deals announced in the first quarter of this year were intra-regional. The merger of Vodafone's (L:VOD) India unit with rival Idea Cellular (NS:IDEA) topped the chart.
Bankers said they expected more of the same, pointing to the potential sale of Singapore-listed Global Logistic Properties (SI:GLPL), which has a market value of over $9 billion, and the privatization of power companies in Australia.
M&A advisory fee volume dropped nearly 40 percent to $321 million. Morgan Stanley (N:MS) was the top advisor, followed by Industrial and Commercial Bank of China (HK:1398) and Credit Suisse (S:CSGN).
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In 2016, announced M&A deals involving Asian companies, excluding Japan, totalled $1.2 trillion, just below a record level in 2015.
Tighter regulations in China have made it tougher for Chinese firms to launch takeovers overseas, which had a major impact on the region's overall dealmaking in the first quarter.
Deals between Asian companies totalled $107.4 billion in the first quarter of 2017, down from a year-earlier $163.4 billion.
Asia-Pacific outbound deals targeting U.S. assets fell 78 percent in the first quarter from a year ago, while similar deals targeting European firms declined 85 percent.
Chinese buyers remain interested in Australia, but constraints on capital outflows have made it more difficult for deals to get done, said Deutsche Bank's Australia and New Zealand co-head of corporate finance Bruce MacDiarmid.
"What we are seeing now is those deals that do get done have a strong strategic relationship to state-owned enterprises and what they want to achieve," he said. "Other deals will be harder for them to do now."