Timing is everything, seasoned investors tell us, and the Chinese government's much-publicised recent decision to start investing directly in western companies has proved to be particularly badly timed.
Back in May, when the private equity boom was in full swing, the Blackstone Group, the second largest PE company in the US, revealed that China's new State Investment Company had agreed to participate in its IPO and make a $3bn investment in the company.
SIC was set up to help invest China's embarrassingly tall mountain of foreign exchange reserves.
Then, the Financial Times praised the move in an article ($) titled “Chinese agency charts bold path”. China's foreign investment company had pulled off an “investment coup” that would have been unthinkable for China's cautious bureaucracy only a few months ago, the FT said.
But China chose a bad time to throw caution to the wind.
The SIC agreed to pay 95.5% of the $31 offer price fixed for Blackstone's shares in its eagerly-awaited IPO in June. But since the IPO, the share price has tanked. Yesterday it closed at a little over $25, so SIC is sitting on paper losses of more than $400m.
For years, China's central bank invested in safe US Treasury bonds and other government bonds. But, as its foreign reserves reserves have soared to $1.3 trillion, Beijing has started seeking higher returns. Nevertheless, as all neophyte investors learn to their cost, higher returns invariably involve bigger risks.
SIC has agreed to hold its investment in Blackstone for at least four years, which is probably just as well if it wants to see a positive return on its investment.
SIC also recently bought a 0.46% stake in BG Group, Britain's third-largest gas producer, and analysts say it might raise its shareholding further. Meanwhile, China Development Bank has taken a large stake in Barclays Bank of the UK to help fund the latter's bid for Dutch bank ABN Amro.
Irrespective of whether the bid succeeds, the tie-up with CDB has given Barclays a valuable business partner in China, says ($) the FT's Lombard column. It has also one in the eye for its western rivals as Barclays has shown there is a different way to do business with China without having to fork out lavish amounts for minority stakes in China's domestic banks.
Blackstone advised the CDB on this deal and it hopes that the SIC debacle will not discourage other Chinese institutions from using its services to help snap up overseas assets.
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