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September 19, 2009

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Firms warned about takeovers

COMPANIES prowling overseas for investment bargains should first take a long, hard look in the mirror, according to participants at a trade conference in Beijing.

Risk often starts when a company misjudges its own capabilities, Liu Weiming, a senior official at China CITIC Bank told the China Import and Export Enterprise Annual Conference.

"You wouldn't allow a kid to drive a Ferrari," he said. "Similarly, companies should wait until they grow up and are capable enough to manage the complexities they take on when buying big overseas companies."

A national debate on the merits of Chinese companies snapping up overseas bargains after the global financial crisis slashed corporate values was triggered by several high-profit takeover attempts.

Sichuan Tengzhong Heavy Industrial Machinery Co, a company with scant auto-industry experience, drew the most second-guessing after it said in June that it intended to buy the Hummer brand from General Motors Corp. The bid hasn't made much progress, amid concerns about its feasibility.

Companies not only need to carefully assess their own capabilities; they also must vet the strengths and weaknesses of potential takeover targets and take the pulse of the world economy before leaping into overseas investments, conference participants said.

"It is important to have a thorough evaluation," said Liu. "The crisis has caused big changes in global investment practices, which demand stronger risk management skills."

Sheila Wong, a senior official at Credit Suisse (Hong Kong) Ltd, told the conference that it's important for investors to understand how to monitor exchange rates.

"There are a lot of tools to hedge the risk of exchange fluctuations, which are increasingly hard to predict amid global economic uncertainties," Wong said.

Chinese companies desperately need seasoned personnel with international experience before they try to conduct overseas acquisitions, she said.


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