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City cool on Chinese Balfour Beatty takeover reports

The City has played down reports that a Chinese state construction company is preparing a £2bn takeover bid for Balfour Beatty.

According to a report in the Sunday Times, China Civil Engineering Construction Corporation (CCECC) has “sounded out industry figures” over a potential deal for the UK’s biggest contractor.

But analysts this week told Construction News it was unlikely any approach has been made or that investors would be keen to sell.

“This seems like it’s someone flying a bit of a flag,” said one analyst, who wished to remain anonymous.

“If Balfour did get taken out, the Chinese would make sense [as a buyer], but that doesn’t mean someone is going to do it.”

Never say never, but there’s as many reasons against it as for it

Kevin Cammack, Cenkos Securities

Cenkos Securities analyst Kevin Cammack suggested it was unlikely to be a serious move from CCECC, as the state-backed company had not been seen as a potential buyer last summer, when Carillion made its ultimately unsuccessful approach for Balfour Beatty.

“Never say never, but there’s as many reasons against it as for it,” he said.

“If the Chinese were serious about this, I would have thought they’d have been more actively involved in and around the time of Carillion’s deal and arguably there would be better options for them if it’s just about securing the capacity to deliver projects in the UK.”

But the anonymous analyst did add that Balfour Beatty “would be the right one” if a Chinese investor did make a move for a UK infrastructure firm.

“There’s a lot of PFI assets there, there’s a good skillset and they are starting to turn it around.”

The £2bn price tag suggested by reports would be in line with a target valuation of 290p per share mooted by Numis Securities in a note to investors issued last month.

Balfour Beatty’s share price this morning stood at 257.8p, up 3.5 per cent from its Friday night closing price and giving the group a market value of £1.77bn.

Despite the reported £2bn pricing representing a premium on Balfour Beatty’s current market value, the analyst said it would be unlikely to tempt institutional investors.

“Investors would say they were not buying it for [its value] right now,” the analyst explained.

Chinese contractors and investors have been making increased inroads into the UK construction and infrastructure space in recent months.

Last week, China Harbour Engineering Company won the biggest contract so far awarded (£300m) on the Swansea Bay Tidal Lagoon, and is now targeting other UK assets for investment.

In April, Construction News revealed that Chinese client Wanda One had selected a joint venture between Interserve and China State Construction Engineering Corporation to develop the £900m One Nine Elms project in London.

However, a move by a Chinese state entity to take over a major UK firm outright would mark a major escalation in the country’s interest in the UK construction sector.

Balfour Beatty declined to comment.


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