CHINA: State owned bank in China's biggest overseas investment
Updated
In a dramatic sign of China's increasing financial influence, a government-owned bank is helping fund one of the biggest global mergers in the financial services sector. The China Development Bank is contributing to the $US90 billion bid by British bank Barclays for the Dutch banking giant ABN-AMRO. The bid also involves Singapore's government-linked company Temasek.
Presenter: Karon Snowdon
Speakers: Howard Gorges, Vice Chairman of South China Brokerage in Hong Kong
SNOWDON: The Chinese government has a lot of cash - and it's keen to spend it.
GORGES: China's got one-point-three trillion dollars of foreign exchange reserves, and Asia in general has much more than that. So China's now joining the crowd of country type investment funds which they are going to try and invest money overseas in companies and not just simply in the bond market.
SNOWDON: Howard Gorges is Vice Chairman of South China Brokerage in Hong Kong. While China is looking for overseas investments and commercial influence, others - like Barclays are equally keen to have it as a partner. Barclays has been able to increase its bid for ABN AMRO and the amount of cash it can pay up front by involving the China Development Bank and Temasek. The Bank will end up investing around 13 billion dollars in Barclays if the Barclays bid for ABN is successful over another rival bid. The European merger will make the Chinese bank the biggest investor in Barclay's and will be the biggest overseas investment by China so far. The China Development Bank is 100 per cent government owned. This could become an issue in some markets depending on the size of the stake, says Howard Gorges.
GORGES: It does raise issues because if it was to become a strategic shareholder in an overseas company then people would question the motives, and also if it was at one time to move from being a strategic investor to try and takeover a company other investors may fear that the company would then not be subject to normal market disciplines. It's the different kind of animal being state-owned. If it exceeds five per cent it's going to start creating question marks.
SNOWDON: Amsterdam-based ABN AMRO this week issued a positive statement about the proposed merger with Barclays and China's involvement. It said, "The proposed strategic cooperation with China Development Bank further enhances the growth opportunities of the combined group in the attractive Asian market and can result in creation of additional long-term value for ABN AMRO shareholders." Another aspect of the Chinese Bank's investment if successful is it will own a small piece of the controversial and bankrupt Cross City Tunnel in Sydney through the Australian arm of ABN. More significantly the Chinese Bank and Temasek are being advised by the giant US private equity firm Blackstone - which is not so private anymore. The Chinese Development Bank itself bought a 3 billion dollar stake in Blackstone's public offer of shares just last month. Blackstone is known for its aggressive takeovers, as Howard Gorges notes.
GORGES: Blackstone specialises in buying up companies and then trying to transform them and sell them on at very big profits. Now if China Development Bank was to try and get involved with Blackstone for that sort of purpose I think there could be the risk of nationalistic backlashes against the relationship and also China Development Bank investment policy in general in overseas markets.
