The on-going saga of the Milan sale to a group of Chinese investors led by Sino Europe Sports continues, as Fininvest is expecting to receive a third deposit of €100M either today or Friday. With this deposit, Fininvest will grant the SES another delay (expected to be April 7) to pay the balance and close the deal (€440M including debt).

Given the numerous delays and lack of clarity, the media has been having a field day speculating on what is actually going on. Many articles were posted on the subject, ranging from professionals with a finance background to those who only have a sporting one. Several different hypotheses are mentioned, many assumptions are made and many gaps are filled with “maybe’s” and “if’s” which is common when you don’t know all the answers. Everyone is trying to give their readers some kind of explanation or opinion, an update on what is going on, yet these efforts are like trying to throw darts in the dark when you don’t know all the facts.

It hasn’t helped that Sino Europe Sports has done a terrible job with communication. Simply stating the delays are caused by “circumstances out of our control” further erodes their credibility. This explanation only leads one to believe the delay in closing is due to lack of funds raised (and perhaps investors pulling out) and/or waiting for government authorization.

Fininvest, for their part, have done little to quell the jitters of the fans. Initially there was optimism about a change in ownership but with each passing week, the skepticism mounts and even the most confident of fans are starting to have their doubts about this process.

Silvio Berlusconi‘s reputation hasn’t helped matters either. He has been involved in numerous scandals and after the fallout with Bee Taechaubol, it is no wonder there are those who are not surprised about problems yet again with a new Chinese buyer. Berlusconi, with a media empire at his disposal, can take advantage of how Italians love drama and drag this sale longer than originally planned to fuel the doubters who feel it’s all a plan to sell more newspapers, get web page clicks and drive social media engagement talking more about Milan.

Book Milan Herbert Kilpin
A choreography of Milan fans during a derby (Photo:

On the pessimist side, opinions have varied from the Chinese consortium being unable to close the deal for lack of funds, to Yonghong Li not having any financial strength whatsoever (i.e just another Bee Taechaubol). Some have also suggested spending on transfers will be limited as the consortium’s main objective is to achieve a significant return on investment.

On the conspiracy side, reports have surfaced of Chinese investors being ghosts or using this purchase of Milan to launder money. Given the restrictions to move capital out of China, it can only be a group willing to commit fraud that will pay the high asking price to acquire Milan. Eager to diversify their investments outside of China, Milan presents an opportunity to move a large amount of capital. Lastly, there is the conspiracy theory of Silvio Berlusconi using this sale as a ruse to bring back offshore funds into Italy.

On the optimistic side, there is a belief once the sale closes, Milan will have the financial power to spend hundreds of millions of euros every mercato and follow the rapid succession to the top of the football world like PSG or Manchester City.

Regardless where your opinion lies, there is no denying this is a complex matter and what has transpired up to date leaves much to be desired in terms of communication and transparency, especially for the Milan fans.

The point of this article is not to judge anyone for their opinion, but rather elaborate on one area of concern regarding the closing that is worrisome – the Chinese clampdown on foreign investment. While some may view this as a convenient excuse used by SES, there is no doubt of its existence and it’s powerful impact on business in China.

China capital clampdown: current foreign exchange policies and regulations

The slowing economy in China weakened the yuan and prompted Chinese investors, who wanted to diversify their holdings and hedge against a slowing economy, to seek better returns abroad.

According to Bloomberg, the yuan slid to its lowest value in more than two decades against the dollar last year and China’s foreign reserves fell near the $3 trillion level for the first time in six years.

This caused a rise in the shifting of money out of the country at an unprecedented rate. Capital outflows hit yet another record high last year, with a total of $725 billion leaving China, according to the Institute of International Finance.

The Chinese government felt the urgency to stem capital outflows and preserve it’s massive dollar reserves, which in turn prop up the yuan. The central bank told lenders they should stop processing cross-border yuan payments until inflows and outflows are balanced, and requiring them to strictly examine use of the funds overseas.

These capital controls are working, however they are making it more difficult to move money out of China and invest abroad – even for state-owned enterprises.

List of recent Chinese acquisitions that are in jeopardy or have fallen through:

The new capital controls have had a negative impact on some recent deals, putting some transactions in jeopardy while others have been abandoned. Here are some examples:

– Property developers outside of China have reduced their construction projects and have seen cases of Chinese buyers foregoing their deposits as they are unable to pay the balance, particularly in Malaysia

– According to Bloomberg, there has been a tumble in foreign deals. $19 billion USD of acquisitions abroad have been announced by Chinese companies so far this year amounting to a 74% drop from a year ago.

Dalian Wanda Group, owned by China’s richest man, billionaire Wang Jianlin and with assets over $86 billion USD (and coincidentally acquired Infront Sports & Media AG – Serie A’s most trusted advisor – two years ago) aborted it’s $1 billion bid for U.S. company Dick Clark Productions Inc. due to struggles in getting the money to pay for the deal out of China.

Barrick Gold Corp (the world’s largest gold miner) has been unable to complete a sale of a stake in an Australian mine as the Chinese buyer faced delays securing financing, as well as regulatory clearance from China.

– A $1 billion financing deal between Paramount Pictures and two Chinese film companies (Shanghai Film Group and Huahua Media) has been delayed after the China Securities Regulatory Commission decided not to give the deal its blessing.

– Australian explorer Birimian reports the sale of its lithium project in Mali to a Chinese buyer has been scrapped due to difficulty getting capital out of China.

– China’s non-financial outbound direct investment (ODI) and offshore property purchases slid 35.7 per cent in January to 53.27 billion yuan ­— the weakest in 16 months — compared with the same period a year earlier, according to the Ministry of Commerce.

The Chinese contradiction

China’s Commerce Minister Zhong Shan explained one of the reasons there needed to be controls was to restrain Chinese companies from making overseas investments too quickly.
“We not only discourage these kinds of irrational investments, but we will also be keeping watch on them,” he said.

Regulators have warned they will pay close attention to “irrational” investment in property, entertainment, sports and other sectors.

While caution and restraint are the current orders of the day, there is no denying China still aspires to become a force in the world of football.

Spain China
Insidefoto / Acero

China participated in the FIFA World Cup for the first time in 2002. Despite robust economic growth and significant investment in football (both domestically and abroad) China hasn’t qualified ever since. This has left a negative perception among the Chinese population, like a stain on a new shirt. It is for this and other reasons the Chinese Super League has gone on a wild spending spree to give their domestic league national players the opportunity to play with some of the bigger names and coaches to improve their chances in the future.

It is no secret that China wants to qualify for the World Cup again, host a World Cup in 2030 and win the World Cup by 2050. In order to accomplish this, they want to develop their youth, acquire top players and coaches and also clubs. All this investment in the hopes of bettering their chances to make China a world soccer power.

Contrary to other types of investments, there is nothing comparable to uniting the country than rallying together in sport. There is something about football that unites people and it can only help the communist party if China can achieve their goals, for the pride of the nation and its people.

A powerful message can be sent by China to the world, by owning both Inter and Milan. The prestige of having Chinese ownership of these historic clubs goes beyond the pitch, these iconic teams can be used as a marketing vehicule which goes beyond the world of sport.

It is a golden opportunity that China will not want to miss, even if the current regulatory environment is making the closing of the sale painstakingly slow. It is important to remember that typically Chinese investors have a long term outlook. There is no reason to believe once the yuan and the capital reserves are back to levels that put the government at ease, that the reins will be let loose to allow Chinese business to diversify their investments abroad again.

It is for these reasons that despite all the complications and delays, Milan fans should remain optimistic that the sale will close eventually, albeit with bumps and delays along the way.