Friday, August 26, 2005
Temasek keen on $3bn stake in BoC
Francesco Guerrera / Hong Kong August 26, 2005
Seeks concessions made to Royal Bank of Scotland.
Temasek Holdings wants to buy up to 10 per cent of Bank of China for about $3billion, but is demanding warranties against a sudden deterioration in the state lender's finances similar to the ones awarded to Royal Bank of Scotland last week.
According to people close to the situation, Singapore's state investment agency is in the final stages of a deal with BoC that would give it an unparalleled presence in China's financial sector, with stakes in two of the “Big Four” state banks.
Temasek's request for the safeguards granted to an RBS-led consortium in return for a $3.1billion investment in a 10 per cent BoC stake is set to have an impact on other Chinese privatisations, prompting other investors to seek similar guarantees.
Until the RBS deal, the Chinese authorities had resisted attempts to link foreign investments in state-owned companies, whose financial health is often poor, to compensation pledges.
“The RBS deal inevitably created a precedent. Chinese state-owned companies will now be under pressure to offer financial compensation to foreign investors,” said a Hong Kong-based investment banker.
The concessions to the RBS consortium, which also included Merrill Lynch and the Hong Kong tycoon Li Ka-shing, could affect BoC's talks with UBS over an investment of up to $500million ahead of the Chinese bank's planned $3billion-4billion overseas listing.
Temasek declined to comment, but insiders said no deal had yet been struck and although the talks were advanced, they could still collapse or result in Temasek taking less than 10 per cent.
RBS, whose consortium has pledged to retain its BoC stake for three years, has declined to comment on details of the warranties. However, they are believed to offer compensation linked to the main risks of investing in a Chinese bank.
These would include the risks of a sharp fall in BoC's book value a real threat given Chinese banks' history of non-performing loans and the risk of joint ventures not proving as fruitful as hoped.
The latter is unlikely to apply to Temasek as it is a passive investor and has little direct experience of the financial sector.
China observers believe Temasek's willingness to invest large amounts in Chinese companies without demanding a management role has helped it overcome Beijing's initial suspicions over its status as Singapore's official investment arm.
In June, Temasek paid $1.4bn for a 5.1 per cent stake in China Construction Bank, and agreed to buy additional shares when the lender lists in Hong Kong.
ASIAN TIGERS' DEAL
# Deal to provide Temasek unparalled presence in Chinese financial sector with stakes in two of the four big state banks # Temasek demanding warranties against deal, in the face of BoC’s worsened financial state # Deal is the among the first of its kind, where foreign investment is being allowed in state-owned companies # Temasek’s request to have substantial impact on other Chinese privatisations