FX + ODI + OIL = TOTAL

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China’s overseas direct investments (and lucky near misses) are hitting the headlines with increasing regularity. And it is not just the sovereign wealth fund, CIC, that is driving the action. In the latest news, China has taken a stake in Total. The FT (via Bloomberg) reports:

    “The Chinese agency that manages the world’s largest foreign exchange reserves has acquired a 1.6 percent stake in Total SA, Europe’s third-biggest oil company, the Financial Times reported.

    The State Administration of Foreign Exchange has built up a 1.9 billion-euro ($2.98 billion) holding in Total, the FT said, citing an unidentified person close to the Paris-based company. The purchase follows a 61 percent-jump in oil prices in the past year.

    …The stake acquisition represents a more aggressive strategy than the Chinese organization’s previous investment in low- yielding securities such as treasury bonds, the FT said. Total has welcomed the Chinese investment, the newspaper said, citing the company.

    …A subsidiary of the Chinese foreign exchange regulator bought stakes in Australia’s three largest banks, the Financial Times reported in January.

    Hong Kong-based SAFE Investment Co. bought less than 1 percent in each of National Australia Bank Ltd., Commonwealth Bank of Australia and Australia & New Zealand Banking Group Ltd., the newspaper said.”

    No doubt China will plan more investments. However, in some quarters in some foreign lands these investments are seen in a political light, and are likely to receive close scrutiny (as in the – failed – cases of 3Com and Unocal in the US), especially when in sensitive areas such as financial services and resources. On the latter front, there is news from Australia (via BusinessWeek):

    “Beijing-based Sinosteel…in late March reiterated its intention to take over one of Australia’s two largest miners, Midwest Corp.

    The latest bid is just one of many. On Feb. 1, Aluminum Corp. of China (Chinalco) (ACH) teamed up with Pittsburgh-based Alcoa (AA) to spend $14 billion for a 9% stake in Anglo-Australian iron ore producer Rio Tinto (RTP), making the largest ever overseas purchase by a Chinese company. Meanwhile, China Petroleum & Chemical (Sinopec) (SNP) will buy 60% of Australian oil producer AED Oil’s Puffin and Talbot fields for $557 million.

    …The Chinese steel company China Metallurgical Group Corp. (MCC) is currently deliberating a $366 million purchase of Cape Lambert Iron Ore,…Also, Gindalbie Metals has entered into a $488 million joint-venture agreement with one of China’s largest still producers, Anshan Iron & Steel, for the development of the Karara Iron Ore Project in the Mid West region.”

Pricing may end up being as important as politics in these cases, but China has learned some useful lessons. CIC is working hard to show transparency, while minority stakes and co-investments are taking some of the heat out of the headlines, as in the just-announced CIC link with JC Flowers:

    “China Investment Corp., the country’s $200 billion sovereign wealth fund, in conjunction with U.S. private equity firm JC Flowers & Co., formally launched a $4 billion private equity fund focusing on U.S. financial assets, the first such fund for CIC.”

The China ODI story is getting ever more interesting. Expect more news to come.

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