Asian resources firms are rich, hungry and ready to take a record share of global merger and acquisition deals in 2008, but they're struggling to find suitable assets available at a reasonable price.
With roaring regional demand pumping up commodity prices, Asian firms have a strong motive for buying up energy and metals suppliers. But besides Australia and Indonesia, the region has limited natural resources, forcing buyers to scour the globe.
The issue with resources now is just how competitive it is globally, said Colin Banfield, Lehman Brothers' head of M&A in Asia ex-Japan. There's a clear strategic interest and desire to buy that type of asset.
But price and availability are problems as many buyers are chasing few sellers.
Atul Chandra, who heads the international oil business at Reliance Industries, India's biggest listed firm, said he was in the market for a world scale acquisition, but investment banks' cupboards seemed bare.
They keep coming every 15 days with a nice bound book -- half of it about their company, half of it about their view of the world economy ... and one sheet about available opportunities, Chandra told a Reuters India Investment Summit in Mumbai last week.
In the mining sector, the urgency of finding targets has been driven home by BHP Billiton's $140 billion approach to Rio Tinto, a spectacle that sees a covetous China sitting on the sidelines.
It's caught everybody's attention. I think 'China Inc' would desperately like to do something here, said a senior M&A banker based in Hong Kong.
But I don't believe the Chinese will get a bid together, he said, because such a deal would be too big for China to pull off.
BHP Billiton's move is intensifying competition for assets and is likely to accelerate global consolidation, something that Asian firms have largely missed out on -- until recently.
In the past week alone, Indonesian and Chinese companies have bid nearly $2 billion for firms mining zinc, iron ore and copper in Australia and South America.
One deal, Sinosteel's $1 billion bid for Australia's Midwest Corp, would be China's largest foreign takeover in the mining sector, according to data from Thomson Financial.
But even bigger takeovers, such as Tata Steel's $13 billion purchase of Corus, India's biggest overseas takeover, are expected to remain the exception in Asia.
High metals and energy prices, both hovering near all-time highs, make for expensive producers. Shares in BHP, the world's biggest miner, are up more than 250 percent in four years.
WILLING BUT NOT READY
Bankers said few Chinese and Indian firms were ready to make major takeovers and the wave of consolidation had taken many mid-sized players off the table, meaning that individual projects and mines would prove the most fertile ground for acquisitions.
The ripest targets are mines in Africa and Latin America producing commodities that have slipped from their highest prices, such as copper, analysts said. But cast-offs from a potential BHP-Rio tie-up might be much harder to grab.
With few companies selling assets, Asian firms will look for development deals like the $1-$2 billion that Tata Steel said on Wednesday it would spend on an iron ore mine in Ivory Coast.
Those types of targets will also suit Chinese firms, which are dogged by the painful lesson learned by state oil firm CNOOC. It made an ambitious $18.5 billion bid for U.S. rival Unocal in 2005, but was forced to retreat when the bid stirred up a hornet's nest of political opposition in Washington.
Chinese executives became nervous about mega-bids and turned their attention to Africa and South America, where political opposition was less likely to stymie a deal, bankers said.
I think the Chinese have lost all interest in doing things in the United States, said the senior M&A banker in Hong Kong.
Larry Grace, an analyst at Kim Eng Securities, said Chinese firms would still face a backlash if they bid for producers of commodities that were in short supply, including oil.
If they can possibly get hold of anything, they will definitely throw dollars at it, he said. They've got blank checks in their hands. But people don't want to sell to the Chinese.
Brian Gu, head of Greater China M&A at JP Morgan, said Chinese buyers had toned down their expectations and were more willing to settle for minority stakes, seeking a limited degree of influence instead of outright control.
Our Chinese clients are taking a more practical approach to these kinds of acquisitions now, said Gu.
Media reports have said China's oil firms were chasing Australian and Nigerian fields belonging to Royal Dutch Shell and mulling a $5 billion takeover of Oil Search Ltd, the chief oil and gas operator in Papua New Guinea. None of the deals have happened.
Lehman's Banfield said Chinese oil firms were cautious.
If you look at the oil and gas side, I think every asset that is available right now gets shown to an Indian, a Chinese or a Russian buyer, and there's fierce competition.
I think the Chinese oil companies are being very careful to make sure they don't overpay for those assets.
(Additional reporting by Tony Munroe; Editing by Ian Geoghegan)