Archived News - August 2008
8/29/2008
HKMA reported a decrease in the exchange fund of HK$14.4 billion in foreign assets during the month of July, 2008. The investment portfolio is the sovereign wealth fund component which is combined with a backing portfolio that makes up the HKMA exchange fund.
Foreign assets, representing the external assets of the Exchange Fund, amounted to HK$1,169.3 billion. The Monetary Base, comprising Certificates of Indebtedness, Government‑issued currency notes and coins in circulation, the Aggregate Balance of the banking system and Exchange Fund Bills and Notes issued, amounted to HK$324.3 billion.
read more: Hong Kong Monetary Authority
8/28/2008
Many gulf state sovereign funds are seeking investment stakes in large occidental engineering/infrastructure firms. Just recently General Electric and the Mubadala Development Company entered into a business partnership. Qatari Diar which is owned by the Qatar Investment Authority made a bid at the French engineering firm, Cegelec.
The Financial Times reports that "Siemens, Europe's biggest engineering group, has held talks with sovereign wealth funds from the Gulf, Russia and other regions in an attempt to expand its long-term investor base. Joe Kaeser, chief financial officer, said the German industrial conglomerate 'would very much welcome an active involvement' by such funds. 'We are very open to anyone who would want to join us as an investor,' he told the Financial Times.
The prospect of an SWF taking a large stake in a company as prominent as Siemens could prove politically contentious in Germany, where the growing influence of the funds has been heatedly debated."
read more: Financial Times
8/27/2008
Temasek Holdings (Private) Limited (Temasek) released its latest annual financial review for the year ended 31 March 2008. In its fifth year of publication, the Temasek Review 2008 provides the firm's financial, investment and operating highlights of the year.
During financial year ended 31 March 2008, Temasek achieved a record profit of S$18 billion on the back of strong operating performance of its portfolio companies and healthy realised gains from its direct investment activities.
Temasek's portfolio grew to S$185 billion, an increase of 13% from S$164 billion the previous year. On the back of a weaker US dollar, the value of Temasek's portfolio grew 24% from US$108 billion to US$134 billion. Shareholder equity increased 26% to S$144 billion over the same period. The increase in portfolio size was partly due to a new capital injection of S$10 billion by the Minister for Finance (Incorporated), Temasek's shareholder, as part of its asset reallocation. On a cumulative basis, Temasek remains a net contributor in dividends to its shareholder.
read more: Temasek Holdings
8/25/2008
The government is planning to establish a sovereign wealth fund in fiscal 2009 that would place priority on innovative technologies using new energy sources and natural resources, government sources said Saturday. Amid surging prices of crude oil and other resources, the fund--tentatively named Innovation Sozo Kiko--will invest mainly in solar power generation, wind power generation, fuel cells, and other new energy technologies and natural resources.
The government is aiming to prevent excessive outflows of national wealth to countries rich in natural resources, and to build a mid- and long-term base for future economic growth. The government hopes these new policies will transform the economy into one that functions on drastically reduced resource consumption.
Initially, the government saw the fund as an entity to buy up dormant patents owned by companies and universities, aiming to use them to produce high-value-added goods across a wide range of industries.
read more: Daily Yomiuri Online
8/24/2008
According to the Financial Times, "Investments by Russian companies and sovereign wealth funds into the US are likely to face tougher scrutiny in Washington in the wake of the country's conflict with Georgia, experts predict.
While billions of dollars in US investment by Russian companies have so far sparked little controversy in the US Congress, Moscow's military action against its neighbour is expected to heighten concerns on Capitol Hill about Kremlin ties to Russian companies and its potential influence on US investments.
Gazprom, the energy giant majority-owned by the Russian government, said in June that it was considering building its presence in the US through acquisitions.
Any attempt by Gazprom to invest in the US was already likely to be closely examined by the Committee on Foreign Investment, or Cfius, the executive branch agency that investigates sensitive deals on national security grounds. But Cfius is now likely to view such a transaction even more sceptically."
read more: Financial Times
8/20/2008
TITLE 26, Subtitle A, CHAPTER 1, Subchapter N, PART II, Subpart D, Sec. 892.
Statute
Sec. 892. Income of foreign governments and of international
organizations
(a) Foreign governments
(1) In general
The income of foreign governments received from -
(A) investments in the United States in -
(i) stocks, bonds, or other domestic securities owned by
such foreign governments, or
(ii) financial instruments held in the execution of
governmental financial or monetary policy, or
(B) interest on deposits in banks in the United States of
moneys belonging to such foreign governments,
shall not be included in gross income and shall be exempt from
taxation under this subtitle.
(2) Income received directly or indirectly from commercial
activities
(A) In general
Paragraph (1) shall not apply to any income -
(i) derived from the conduct of any commercial activity
(whether within or outside the United States),
(ii) received by a controlled commercial entity or received
(directly or indirectly) from a controlled commercial entity,
or
(iii) derived from the disposition of any interest in a
controlled commercial entity.
(B) Controlled commercial entity
For purposes of subparagraph (A), the term ''controlled
commercial entity'' means any entity engaged in commercial
activities (whether within or outside the United States) if the
government -
(i) holds (directly or indirectly) any interest in such
entity which (by value or voting interest) is 50 percent or
more of the total of such interests in such entity, or
(ii) holds (directly or indirectly) any other interest in
such entity which provides the foreign government with
effective control of such entity.
For purposes of the preceding sentence, a central bank of issue
shall be treated as a controlled commercial entity only if
engaged in commercial activities within the United States.
(3) Treatment as resident
For purposes of this title, a foreign government shall be
treated as a corporate resident of its country. A foreign
government shall be so treated for purposes of any income tax
treaty obligation of the United States if such government grants
equivalent treatment to the Government of the United States.
(b) International organizations
The income of international organizations received from
investments in the United States in stocks, bonds, or other
domestic securities owned by such international organizations, or
from interest on deposits in banks in the United States of moneys
belonging to such international organizations, or from any other
source within the United States, shall not be included in gross
income and shall be exempt from taxation under this subtitle.
(c) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section.
read more: Complete Section 892
8/20/2008
Abstract
written by: Jason Kotter and Ugur Lel
This paper examines the stock price impact of 163 announcements of Sovereign Wealth Fund (SWF) investments. We document an average positive risk-adjusted return of 2.1 percent for target firms during two days surrounding SWF acquisition announcements. The announcement effect is both statistically and economically significant. A multivariate analysis shows that the degree of transparency of SWF activities is an important determinant of the market reaction, and both the SWF and the existing shareholders of the target firm benefit from improved SWF disclosure. In addition, target firms profitability, growth, and governance do not change significantly in the three-year period following the SWF investment relative to a control sample. These results are robust to a battery of tests. Overall, our findings suggest that SWF investments convey a positive signal to market participants about the target firm, increased SWF transparency is enjoyed by both the SWF and existing shareholders, and SWFs are passive investors.
International Finance Discussion Papers
read more: Board of Governors of the Federal Reserve System
8/20/2008
Nearly 300 workers from German shipping group Hapag-Lloyd protested on Tuesday against a possible takeover by Singapore's NOL a day before the cabinet is due to pass a law to shield domestic firms from foreign buyers. Singapore's Neptune Orient Lines and a group of Hamburg investors are on the short list to buy Hapag-Lloyd, the world's fifth largest container shipping group and a unit of Germany's TUI, Europe's biggest travel firm. If NOL is successful, the deal would create the world's third-largest container carrier. But the offer by NOL, 66 percent owned by Singapore state investor Temasek Holdings, has caused concern in Germany, not least about possible job cuts, and the government has welcomed the Hamburg bid to keep the firm in German hands.
read more: Thomson Reuters
8/13/2008
Some members of Congress are upset that speculators, including sovereign wealth funds are pushing up commodity prices. The US based Commodity Futures Trading Commission (CFTC) which is a commodity regulatory agency believes that sovereign wealth funds should be treated like any other investor. The agency is concerned on not who is trading, but how they trade. Fraud and manipulation are the CFTC's top concerns. SWFs typically invest through swap dealers such as Goldman Sachs and Morgan Stanley.
According to the Washington Post, "Sovereign wealth funds, the massive investment pools run by foreign governments, are now among the biggest speculators in the trading of oil and other vital goods like corn and cotton in the United States, according to interviews with brokers who handle their investments at leading Wall Street banks, veteran traders and congressional investigators.
The foreign funds involved in commodity trading are not those from oil-producing nations from the Middle East, according to a large swap dealer. Instead they are mainly from countries, such as those in Asia, that do not already make money from producing oil."
read more: Washington Post
8/8/2008
Linaburg-Maduell Transparency Index
8/6/2008
BNN commentary states, "Dubai's Stake in Cirque du Soleil: BNN speaks to Michael Maduell, president and founder, The Sovereign Wealth Fund Institute."
See Video: BNN
8/4/2008
Kuwait is planning to "double or triple" its investment in Japan, in a move that could take its total commitment to $50bn, according to Mustapha al-Shamali, the Gulf state's finance minister. Both Mr Shamali and Bader al-Saad, head of the Kuwait Investment Authority, have been on a visit to Asia with Sheikh Nasser al-Mohammad al-Sabah, the Kuwaiti prime minister. The KIA has steadily increased its investment in Asia in recent years. So far, China has been the main beneficiary of the KIA's interest. The sovereign wealth fund has a major stake in Industrial & Commercial Bank of China and has been looking to invest in property in China's second-tier cities such as Dalian. In addition, it has been looking to take stakes in south-east Asian banks, particularly in Vietnam.
read more: Financial Times
8/2/2008
The latest investment by Singapore sovereign-wealth fund Temasek in Merrill Lynch & Co. could lift its stake to more than 10%, triggering the need for regulatory approval and reigniting debate about foreign ownership of U.S. financial firms. Earlier this week, Merrill Lynch, the largest U.S. brokerage firm, said that it would issue $8.5 billion in new shares and sell a big chunk of its debt securities at a steep discount. Temasek is already a major shareholder in Merrill after it invested $5 billion (at $48 a share) late last year. Temasek's managing director of corporate affairs, Myrna Thomas, said that "a portion of [the investment] is subject to regulatory approval," suggesting that the stake could rise to surpass 10%. Temasek earlier had sought to keep its stake under 10% following its $5 billion December investment.
read more: Market Watch
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