Risk Moment RES

Chinese property

Published: November 8 2007 09:45 | Last updated: November 8 2007 19:20

Turmoil in credit markets claimed a rare Asian casualty on Thursday. Country Garden Holdings, a Chinese property developer, was forced to scrap its planned $1bn-plus bond.

Asian high-yield bonds are an obvious asset class to dump in any flight to quality. The number of international high-yield bonds from Asian borrowers is small, with annual issuance of about $15bn. Chinese property developers account for a decent slug of that and, faced with limited supply, investors have demanded increasingly high returns. Country Garden’s 10-year bonds would have yielded 10 per cent and the five-year bonds 9.25 per cent.

The sector is also a lightning rod for contagion. Chinese developers are more reliant on global credit markets than most Asian companies. Domestic banks, under pressure from a government determined to cool the real estate market, are parsimonious with loans. That has prompted bigger developers to obtain Hong Kong listings: so far this year, 10 Chinese property developers have raised $8bn of equity, according to Thomson Financial. Several have followed up with global bond issues, to help top up coffers rapidly depleted by aggressive land-bank acquisition.

With an economy growing at an annual 10 per cent and rapid urbanisation, developers look like a classic punt on growth. Ultimately, however, the business model is unsustainable: raising funds at ever higher rates to acquire ever more expensive land. The sector is highly fragmented – Standard & Poor’s estimates there are 56,000 developers – creating strong competition for available property. The government’s concerns about overheating bring an added element of regulatory uncertainty. Some red lights are flashing. While property prices shoot higher, sales are flagging – luxury apartments in Beijing are a case in point. With credit markets temporarily shutting down on them, Chinese developers face a squeeze.

Copyright The Financial Times Limited 2007

ChemChina Offers $2.7 Billion for Nufarm, People Say (Update3)
By Cathy Chan and Ambereen Choudhury

Nov. 2 (Bloomberg) — China National Chemical Corp. offered A$2.96 billion ($2.7 billion) for Australian farm-chemical maker Nufarm Ltd., inviting two U.S. buyout firms including Blackstone Group LP to join, three people familiar with the matter said.

China National, known as ChemChina Group, submitted a letter to Nufarm on Oct. 31 with an indicative bid of A$17.25 per share, two of the people said, declining to be identified because the details are private. The company asked Blackstone, manager of the world’s biggest buyout fund, and Fox Paine & Co. to take minority stakes in Nufarm, they said.

ChemChina would be the first state-owned Chinese company to team up with buyout firms for an overseas acquisition, the people said. Buying Nufarm will give it control of the world’s second- largest supplier of off-patent agricultural chemicals as farmers plant bigger crops to take advantage of rising prices for wheat, soybeans and other foods.

“You’ll see more of the giant state-owned firms teaming up with the big boys in the buyout industry,” said Vincent Chan, chief executive officer of Spring Capital Asia Ltd., a Hong Kong based buyout firm. “The benefits are complementary. It helps Chinese companies go overseas to seek growth, and boosts returns for buyout firms.”

New York-based Blackstone, which counts China’s $200 billion sovereign wealth fund among its investors, in September agreed to buy a stake in ChemChina’s specialty chemicals unit, China National BlueStar Group Corp., for $600 million.

The offer is 11 percent above Nufarm’s last traded price. ChemChina may seek to make the acquisition through BlueStar, of which it owns 80 percent, said the people. Melbourne-based Nufarm, the biggest maker of herbicides in Australia, may announce the bid today or on Nov. 5, the people said.

Fastest-Growing

The acquisition would be funded with at least A$1 billion of debt, a person familiar with the matter said.

Nufarm has manufacturing operations in 14 nations and sells products in more than 100 countries. The company sells 36 percent of its products, mainly herbicides used to protect crops in North and South America and 32 percent in Australia.

The Australian company completed the acquisition of Brazil’s Agripec Quimica e Farmaceutica SA in May, increasing its presence in what’s anticipated to be the fastest-growing agricultural market in the world, Credit Suisse Group analysts led by Rohan Gallagher said yesterday in a report.

Shares Suspended

Nufarm had its shares suspended from trading yesterday and said it received a letter the day before that “relates to previous discussions that Nufarm has been involved in concerning a transaction that may result in a change of control.”

The company’s shares rose 13 percent to A$15.60 on Oct. 31 following a South China Morning Post report that Nufarm may get a revised bid from Blackstone and BlueStar after rejecting an initial offer of A$17.10 a share.

Mergers and acquisitions in the chemical industry are likely to increase as manufacturers compete to secure supply, UBS AG said in July. Permira Advisers LLP, Europe’s biggest buyout firm, last month agreed to buy Arysta LifeScience Corp., the world’s largest closely held farm chemicals maker, for about 250 billion yen ($2.2 billion).

A successful cash bid would need to be between A$17 and A$20 a share, Credit Suisse Group analysts said yesterday. Nufarm stock has risen 51 percent this year, valuing the company at A$2.67 billion.

`Fruitless’

ChemChina plans to buy some shares from Nufarm Chief Executive Officer Douglas Rathbone and make a general offer to other stockholders, the people said. Rathbone, who owns 17 percent of Nufarm, would be asked to remain in his position after the takeover, they said.

A hostile takeover without the acceptance of Rathbone would be “fruitless,” Credit Suisse said.

Fox Paine was started in 1997 by former Kohlberg Kravis Roberts & Co. partner Saul Fox with W. Dexter Paine, III, another ex-KKR partner. Fox serves as chief executive officer and Paine is the company’s president.

The buyout company sold its stake in U.S. seedmaker Seminis Inc. in 2005 to Monsanto Co., the world’s biggest maker of genetically engineered crops.

China Ambitions

Zhou Chuanrong, a Beijing-based spokesman for ChemChina, declined to comment, as did John Ford, a New York-based Blackstone spokesman. Andy Brimmer, a spokesman at Foster City, California-based Fox Paine, couldn’t immediately be reached after hours.

Chinese companies, buoyed by economic growth of more than 11 percent at home and flush with cash after raising about $95 billion in stock sales this year, are seeking overseas takeovers. China is home to five of the world’s 10 largest companies by market value, compared with three for the U.S.

Industrial & Commercial Bank of China Ltd., the world’s largest bank by market value, agreed last week to buy 20 percent of Standard Bank Group Ltd., Africa’s biggest bank, for 36.7 billion rand ($5.6 billion). Citic Securities said Oct. 22 it will pay $1 billion for the equivalent of 6 percent of New York- based Bear Stearns Cos.

The takeover spree is creating opportunities for buyout firms. Bain Capital LLC, the Boston-based buyout firm, in September teamed up with closely held Huawei Technologies Co., China’s largest maker of telecommunications-networks equipment, for a $2.2 billion takeover of 3Com Corp.

In 2005, TPG Inc. bought a stake in Lenovo Group Ltd. for $350 million to help the Chinese company fund its purchase of International Business Machines Corp.’s personal-computer unit.

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net

Last Updated: November 2, 2007 00:10 EDT
http://www.bloomberg.com/apps/news?pid=

20601087&sid=aN2k8dIx6kjY&refer=worldwide

Total spending may jump 24 percent to $24.5 billion this year, PetroChina said in March. That is higher than Exxon Mobil, Shell or BP.

………………………………………………………………………………………

PetroChina May Raise $8.9 Billion in Shanghai Sale (Update4)
By Ying Lou and Joe Carroll

Oct. 24 (Bloomberg) — PetroChina Co., the nation’s biggest oil producer, may raise as much as 66.8 billion yuan ($8.9 billion) selling shares in Shanghai to expand refineries and output at oilfields.

The company will offer stock in a price range of 15 yuan to 16.7 yuan, PetroChina said today in a statement to the Hong Kong stock exchange. PetroChina said Oct. 21 that it will sell as many as 4 billion shares.

PetroChina has surged more than 15-fold since its Hong Kong listing in 2000 as oil prices tripled and demand surged, making the Beijing-based company the world’s second largest by market value. China is the world’s best-performing equity market this year, and investors may be reluctant to buy the new shares on concerns they have already peaked.

“PetroChina has a market capitalization that’s bigger than BP and Chevron combined so the question is, would you rather own the businesses of BP and Chevron, or PetroChina?” said William Andrews, who helps manage $8 billion at C.S. McKee & Co. in Pittsburgh. “The other thing to consider is that you’ll be a minority partner with the Chinese government. You decide how you feel about that.”

BP Plc, based in London, and Chevron Corp. have a combined market value of $428 billion, $13 billion less than PetroChina. Exxon Mobil Corp. is the world’s biggest company with a market value of $507 billion, according to data compiled by Bloomberg.

PetroChina declined 0.21 percent in Hong Kong trading to HK$19.40 before the announcement. The stock has gained 76 percent this year, more than the 47 percent increase in the benchmark Hang Seng Index. The stock is set to start trading in Shanghai Nov. 5, PetroChina said Oct. 21.

Outperforming Exxon

Oil prices have risen 43 percent this year, on track for the biggest annual gain since 2002. Crude for December delivery increased $1.87, or 2.2 percent, to $87.14 a barrel at 2:37 p.m. on the New York Mercantile Exchange. The futures reached a record $90.07 a barrel on Oct. 19.

Chinese demand for diesel, gasoline, kerosene and other petroleum-based fuels to run trains, furnaces, power plants and trucks is expected to rise almost 6 percent this year to 7.58 million barrels a day, the International Energy Agency said in a Sept. 12 report.

The increase in demand will outpace the expected 4.1 percent growth in output from China’s oil fields this year to 3.82 million barrels a day, necessitating increased reliance on imports, according to figures from the Paris-based IEA.

Adding Reserves

PetroChina has been adding new reserves at an average annual rate of 5 percent for the past three years, outperforming Exxon Mobil, Royal Dutch Shell Plc and BP, the world’s biggest oil companies by sales.

PetroChina operates eight refineries in China that can process 1.07 million barrels of crude a day, according to data compiled by Bloomberg. The company also operates a plant in Kazakhstan equipped to refine 160,000 barrels of oil a day.

Billionaire investor Warren Buffett’s Berkshire Hathaway Inc. sold its entire stake in PetroChina, Buffett said in an interview on Fox Business Network Oct. 18. Berkshire was PetroChina’s biggest shareholder after state-owned China National Petroleum Corp., with more than 2.3 billion shares as of the end of last year.

Berkshire bought its stake for less than HK$1.70 a share in April 2003. Activists have urged Buffett and other investors to divest PetroChina holdings over links to Sudan, whose government the U.S. accuses of supporting genocide. The decision to sell was “100 percent” based on share price, Buffett said.

“Valuations are unrealistically high over there right now,” said Andrews of C.S. McKee, whose holdings don’t include PetroChina shares.

World’s Biggest

If priced at the top end, the sale would surpass the 66.6 billion yuan generated by China Shenhua Energy Co. earlier this month and making it the world’s largest stock offer this year.

The oil producer said Sept. 20 it plans to use 37.77 billion yuan of the funds raised in the Shanghai share sale for refinery and oilfield projects. The company also will spend 17.5 billion yuan upgrading the Dushanzi refinery in the northwestern region of Xinjiang.

PetroChina will spend 12.8 billion yuan to boost production capacity at its Changqing and Daqing fields, it said in its listing prospectus. The Beijing-based explorer and refiner will use 1.5 billion yuan to develop part of the Jidong Nanpu field, China’s biggest oil discovery in almost 50 years, and 6 billion yuan to expand an ethylene plant at Daqing.

Total spending may jump 24 percent to $24.5 billion this year, PetroChina said in March. That is higher than Exxon Mobil, Shell or BP.

UBS AG’s China venture, UBS Securities Co., Citic Securities Co. and China International Capital Corp. are arranging the share sale.

To contact the reporters on this story: Ying Lou in Hong Kong at ylou1@bloomberg.net ; Joe Carroll in Chicago at jcarroll8@bloomberg.net

Last Updated: October 24, 2007 14:45 EDT

http://www.bloomberg.com/apps/news?pid=

20601080&sid=aTlj2WlOMEBg&refer=asia

China May Not Be Shielded From Subprime Decline
Forbes - 7 hours ago
Morgan Stanley says it could be hit by what it is labeling a “fourth-generation” emerging markets financial crisis. The first official comment from the Chinese government on the issue appeared in the Monday edition of Securities Daily.

China move starts corporate bond surge

By Jamil Anderlini in Beijing

Published: August 15 2007 19:29 | Last updated: August 16 2007 05:03

Listed Chinese companies are lining up in their hundreds to sell corporate bonds and pay off bank loans after the securities regulator issued formal rules governing the nascent sector.

The regulations, first circulated in draft form two months ago, greatly reduce the formal requirements for listed Chinese companies to sell bonds for trade on the Shenzhen and Shanghai stock exchanges.

A quota system that kept annual corporate bond issuance below Rmb100bn ($13.2bn) last year has been abolished and listed companies are now permitted to repay bank debt with bond proceeds for the first time.

Companies with high levels of debt, particularly in the power, property and transport infrastructure industries are expected to be the first to sell bonds under the new regime, with China Yangtze Power reported to be preparing an Rmb8bn issue.

But bonds will appeal to all corporations in a country where bank lending rates are set artificially high by the central bank to ensure profits and stability in the state-owned banking sector.

Interest rates in China’s bond market are generally 2-3 percentage points lower than bank loans.

“The regulators want to gradually move to the US model where a large amount of credit risk is moved from the bank balance sheets to the capital markets,” said Zhang Zhiming, director of asset allocation research at HSBC in Hong Kong.

“There is likely to be huge interest from listed companies because, even if they don’t need additional funding, they will still be attracted to save money by switching from bank loans into bonds.”

The reforms were made possible by a decision this year to shift control of corporate bonds from the National Development and Reform Commission, the country’s conservative central planning agency, to the more liberal market-oriented China Securities Regulatory Commission.

State-owned banks, which account for more than 90 per cent of corporate financing, are not the only sector that will be affected by the move.

In the last seven months of 2005, Rmb142bn of short-term corporate paper with maturities of less than one year was sold in the inter-bank market. Total issuance hit Rmb292bn last year, and Rmb180bn so far this year.

Copyright The Financial Times Limited 2007

http://www.ft.com/cms/s/aadf375c-4b54-11dc-861a-0000779fd2ac.html

China’s Central Bank Says Dollar Assets Are Important Reserves
By Zhao Yidi

Aug. 12 (Bloomberg) — China’s dollar assets, including American government bonds, are an “important component” of the country’s foreign exchange reserves investment, the central bank said in an article published by the official Xinhua News Agency.

“China is a responsible investor in the international financial market,” an unidentified official from the People’s Bank of China said in an interview with Xinhua. “We keep a long-term and strategic vision” when deciding the currency asset structure, it said.

The official comments released through Xinhua may be a clarification of China’s confidence in its dollar assets after a U.K. Daily Telegraph report saying China may threaten to sell its dollar asset holdings in the event of U.S.-imposed trade sanctions.

The newspaper cited comments made by the director of financial research at the State Council Development, Xia Bin, speaking in a conference on July 28, saying that the country could use its $1.3 trillion in foreign currency reserves as a bargaining tool.

The U.S. government raised concerns over the Telegraph’s report because China is the second-largest foreign holder of U.S. government debt, with $407 billion. President George W. Bush said on Aug. 8 that dumping Treasuries would be “foolhardy” for China.

China’s foreign exchange reserve management is mainly targeted on “safety, liquidity and returns,” the central bank said. “We have always been paying great attention and actively facilitating the harmonic development of trade between China and the U.S.,” the report added.

To contact the reporter on this story: Yidi Zhao in Beijing at at yzhao7@bloomberg.net

Last Updated: August 12, 2007 02:34 EDT

http://www.bloomberg.com/apps/

news?pid=20601080&sid=ai4LRMDihaw4&refer=asia

China Says Conditions for Stock-Index Futures Are `In Place’
By Zhang Dingmin

Aug. 11 (Bloomberg) — The conditions for introducing stock- index futures in China are “already in place,” the Chinese government said.

The State Council, China’s cabinet, didn’t give a timetable for the start of index futures in a statement posted on its Web site today. The statement also said the China Securities Regulatory Commission will continue to promote the listing of “big, good-quality” companies and accelerate the development of the corporate bond and asset-backed securities markets.

China in June published rules for stock-index futures, paving the way for financial products that will let investors hedge risk in a market that’s more than doubled this year. The key CSI 300 Index has surged about 140 percent this year, the most among 89 global benchmarks tracked by Bloomberg.

The number of accounts opened by investors to trade local currency-denominated A shares rose by 27 percent from the beginning of the year to 94 million as of Aug. 6, today’s statement said.

“Many new investors that lack risk awareness and the ability to withstand risks have entered the market, and market irregularities have increased,” the statement said. There is a need to “continue educating investors” and “prevent market risks and promote the healthy development of the capital market,” the statement said.

The government also will support small and medium-sized companies in raising capital in the stock market, the statement said. A small-cap market will be launched “at a proper time,” it said without elaborating.

To contact the reporter for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net

Last Updated: August 11, 2007 07:01 EDT

http://www.bloomberg.com/apps/

news?pid=20601080&refer=asia&sid=a7rVC7DJZ8_Y