Sovereign Wealth Fund Institute

This graph plots a change in the growth of the balance sheet of the Federal Reserve versus the People’s Bank of China (PBOC) in a percentage of local gross domestic product (GDP). In recent years, China has expressed serious concern about the unprecedented growth of the Federal Reserve’s balance sheet and how it can impact the value of China’s over three trillion in foreign currency reserves. It is common knowledge that Chinese trade surpluses generates major flows of dollars back to China. The PBOC purchases foreign exchange entering China. These purchases are financed with the issuance of bills denominated in renminbi.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Source: People’s Bank of China, Federal Reserve, BEA, National Bureau of Statistics, China

Asian sovereign wealth funds are keen on China’s growing retail consumer sector. Both of the Singapore SWFs have a deep history investing in China.  On January 20, 2012, an affiliate of the Government of Singapore Investment Corporation Pte Ltd and TPG Capital will invest in convertible bonds in Hong Kong-listed China sportswear brand Li Ning Co. Ltd. Singapore’s GIC already holds around 63 million ordinary shares in capital in Li Ning Co. Ltd.

Convertible Bonds Subscription
5-Year Convertible Bonds
4% Annual Interest Rate
TPG Capital – RMB561 million – (approximately HK$690 million)
GIC Affiliate – RMB189 million – (approximately HK$232 million)

Assuming the convertible bonds are fully converted, GIC will hold approximately 93 million ordinary shares, representing approximately 8% of the total enlarged share capital in Li Ning Co. Ltd.

The fourth largest pension fund in the world, Korea’s National Pension Service (NPS) can now trade renminbi-denominated stocks and bonds in mainland China as a qualified foreign institutional investor (QFII). Korea’s NPS was founded in 1988 and established under the National Pension Act. In early 2006 the NPS launched an overseas investment team.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Starting in 2005 until the end of 2011, the United States is the top targeted nation for direct sovereign wealth fund investment. We calculate this from our most recent database statistic of US$75.68 billion. The United States is followed by the United Kingdom’s US$ 67.68 billion. China is a major recipient of direct sovereign money inflow, with a significant portion coming from Singapore and the Middle East. Switzerland received major cash infusions during the subprime crisis.

Latest database statistics of 12/27/2011

Click on the image to enlarge

Top countries for sovereign wealth fund direct investment inflows 2005 to 2011

The Sovereign Wealth Fund Transaction Database is now available online for subscribers. Transaction data can now be accessed on a more frequent basis. The SWFTD now contains over 2,800 recorded transactions.

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Singapore’s Temasek Holdings is stepping up investment activity in the North Asia region. It created Pavilion Capital Pte, a wholly owned company to invest in closely held companies and will focus on small and medium enterprises in China. The new entity will be run by Tow Heng Tan, its former chief investment officer and senior managing director (Investments) of Temasek Holdings covering initiatives for direct investments.. Mr. Tow Heng Tan joined Temasek Holdings in 2002 and became the chief investment officer in October 2007.

By creating this sovereign wealth enterprise, it will give Temasek additional organizational flexibility to access direct company stakes the region.

According to a statement sent out by Temasek Holdings regarding Pavilion, is that it will “complement and expand our coverage and capacity for North Asia, including China.”

China has $3.2 trillion in foreign exchange reserves. Over the past decade, China has been a key investor in U.S. government debt; however, combined with factors such as low yields and quantitative easing, China is hedging itself up the asset class ladder further into equities. In 2007, China established the China Investment Corp (CIC).

It is rumored that the People’s Bank of China plans to develop a new investment vehicle to manage investment funds worth around US$ 300 billion. The investment vehicle would be affiliated with China’s State Administration of Foreign Exchange (SAFE). The investment style would be similar to Hong Kong-based SAFE Investment Company Ltd also known as Hua An.

The proposed vehicle would operate two funds. One fund would be called Hua Mei (China-US) and focus on the United States. The other fund would be called Hua Ou (China-Europe) and focus on Europe.

The China Development Bank (CDB) is a government lender owned by the Government of China. They have been a chief source of capital for international project finance deals. The CDB has already expanded into various continents such as Africa (China-Africa Development Fund), South America, and Asia. Originally founded as a policy bank to pursue the macroeconomic policies of the Chinese government, the bank is taking a different direction. It is in the evolution of becoming more like a commercial bank by increasing its role in global finance through various segments. [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

The China Investment Corporation (CIC) purchased a portion of Bank of America’s holdings in China Construction Bank (CCB) in a transaction worth around US$ 1.75 billion (2.76 billion shares). Bank of America is attempting to strengthen its capital base and build a stronger balance sheet.

Africa is a resource rich continent with rapidly expanding demographics, but political risks are common in Africa. Launched in 2007, the China-Africa Development Fund (CAD Fund) has fully invested the initial US $1 billion. The CAD Fund can expand up to US$ 5 billion in capital. The initial US$1 billion was derived from the China Development Bank (CDB). The CDB is a government lender owned by the People’s Republic of China. They also finance overseas investment projects.

Currently, the CDB is looking for fund investors for its African investment fund. These investors could include Chinese companies.

Can sovereign wealth funds play a role in the saving of Europe? The European Financial Stability Facility (EFSF), a Luxembourg incorporated entity, has been in the news headlines in recent months. The EFSF will eventually be worth US$1.5 trillion after European leaders agreed to leverage existing guarantees 5x. Germany, France, and Italy are the three largest contributor countries to the EFSF. Supranational debt exposure is usually deemed less risky, but underlying factors make it look unattractive to some governmental investors. With all this being said, sovereign wealth fund appetite on the EFSF varies.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Central Huijin Investment Co, the sovereign wealth enterprise of the China Investment Corporation is purchasing more shares in two of China’s major banking institutions. On Monday, Central Huijin Investment Co. purchased 39.1 million shares of the Agricultural Bank of China. They also purchased 14.6 million shares of the Industrial and Commercial Bank of China.

This is a clear indication that Beijing is looking to stabilize equity markets and promote confidence. This isn’t the first time Central Huijin stepped in; they did so during the financial crisis.

The Kuwait Investment Authority (KIA) is planning to open a representative office in Beijing. This signifies Kuwait’s increasing appetite for investment opportunities in mainland China, thus tightening Sino-Kuwait economic and political relations. Already, the Kuwait Investment Authority has participated in a number of noteworthy Chinese initial public offerings and investments.

Jack Ma

Temasek Holdings is an existing shareholder in the Alibaba Group. DST Global, Yunfeng Capital, Silver Lake, and Temasek Holdings are participating to invest in the Alibaba Group. Alibaba Group is one of China’s biggest e-commerce companies. The key objective of the investment is to provide liquidity to Alibaba’s employees. It is said the amount of stock from Alibaba employees that was being purchased is around US$ 1.6 billion. More and more internet companies are using private investment rounds to let employees cash out shares.

Citic Securities is planning to list in Hong Kong by October 6th. The securities company is the largest in China by market value. Sovereign wealth funds have been investing in Chinese financial firms and banks for quite some time. Earlier we saw tremendous sovereign investor interest in the IPO of Agricultural Bank of China.  In this current environment, capital raising deals present many challenges to companies.

In getting a billion dollar plus corporate capital raise deal done, cornerstone investors involving sovereign wealth funds are almost a necessity.

Citic Securities has already fortified six cornerstone investors. These include the sovereign wealth funds of Temasek Holdings and the Kuwait Investment Authority. Including BTG Pactual SA which has received SWF investment in the past, the six cornerstone investors plan to purchase US$ 850 million in stock, or at least 44% of the offered shares.

Hugo Chavez

Venezuela is fortunate enough to be the largest oil producer in Latin America being courted by several economic powers such as China, Russia, and Brazil.  The country is highly dependent on oil revenues and the price of oil. Nearly 95% of export earnings stem from oil revenues. With the excess petroleum wealth, the country had the ability to take on a myriad of socialist policies, increase military expenditures, and fund infrastructure projects. Venezuelan President Hugo Chavez has transformed the country in a matter of a decade to nearly a centrally planned economy. In fact, numerous foreign companies, especially in the oil sector were forced to be nationalized. Venezuelan President Hugo Chavez also made a statement to nationalize the gold industry in his country.

Recently, the South American nation approved plans to shift money and gold held abroad back to Banco Central de Venezuela. Sources believe $6.3 billion in cash reserves and at least 211 tons of gold are held internationally and are being moved.

What is the reason for the shifting of money and gold?[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

It is true that most sovereign wealth funds and global institutional investors have a high allocation to U.S. dollar assets. This has been the story for the past half century. Second, it has been a difficult time for the U.S. dollar this past decade. With the bailout of financial institutions, mounting federal and state governmental deficits, QE2, high unemployment, two wars, and now the possibility of a block in the augmentation of the debt ceiling, American currency is increasingly being watched like a hawk from foreign governmental investors. In addition, as skilled and unskilled labor prices are priced more efficient in emerging markets versus the United States, it will place a continued drag on the U.S. dollar.

Lastly, the United States cannot exclusively rely on wealth creation from the appreciation of financial and real estate assets over the long haul. Sovereign wealth funds painfully recognize this and learned their lesson from the bankruptcies of Fannie Mae and Freddie Mac.

In the aggregate, sovereign wealth funds are somewhat confident in American multinational businesses. From looking at direct sovereign investments in U.S. equities and U.S oriented external fund manager mandates, we can see the United States is still a viable destination for investment. Furthermore, we see a trend in investing in multinationals, where those companies’ incomes are not solely coming from the United States.

Not all sovereign funds and central banks are confident in the US government’s handling of currency and fiscal policy. In fact the Chinese government warns of excessive risks of U.S. assets, as the dollar keeps falling versus other currencies. The loose monetary policy is stimulating global inflation and asset bubbles, especially in commodities like silver. In November 2010, Russia and China renounced the U.S. dollar in terms of using their own currencies in bilateral trade.

It is true the United States has taken the position of an expansionary monetary and fiscal policy to encourage economic growth; however these economic policies come at a price, which includes higher interest payments and more debt. The Qatar Investment Authority sees the U.S. dollar’s weakness as a driver of its investment policy. Even if the United States can pull off some real economic growth, it will be hindered by incoming inflation.

Sovereign wealth funds across the board are looking at sectors that have a hedge against the American economy. One sector is commodities, which some favorite types include oil, natural gas, gold, silver, and agriculture. In particular, Middle Eastern sovereign wealth funds see it as a win-win, especially in agriculture, since those countries are in dire need of sustaining food supplies. In addition, over the long term as the population of India and China grow and their tastes and preferences alter for more prepared foods, food prices will rise. The Qatar Investment Authority, Kuwait Investment Authority, and even Temasek Holdings have been active investors in food companies.

What is saving the dollar is that there are very little alternatives to it. The euro and Japanese yen have their own issues, precious metals can bubble up, and other currencies lack liquidity.

Recently, Chinese Premier Wen Jiabao made an official visit to several European countries as the continent struggles on how it should handle Greece’s dire economic quagmire. China views Europe as a strategic region and is continuing to invest in government debt across the continent. China is prepared to invest in European government bonds to assist the EU wave over their current predicament. In fact, China holds 12% of Spanish government debt.

China has made a compelling case that it wants to see a strong euro.

Laurence Lau, Chairman of the Hong Kong office of the China Investment Corporation believes the euro will not fall apart. He feels that the Greek sovereign debt crisis will be brought under control and solved.

Other institutional investors are not as optimistic, as Greece is facing a political divide on top of a sovereign debt mess. Some feel that countries will begin to flee the euro currency.

The China Investment Corporation sees tremendous potential to invest in Russia and has already done so. The CIC and Harvard University were among a crop of new investors who purchased a 10% stake in Bank VTB OAO. Russia is planning a wave of privatizations to open up its markets and increase foreign capital investment. Moscow wants to challenge London, as a global financial center and is undertaking several initiatives to do so. It also wants to appeal to private equity investors.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

China views Latin America as a viable region for infrastructure development. The Export-Import Bank of China (China Eximbank) will launch a yuan-denominated fund to invest in developing infrastructure. China Eximbank will partner with the Inter-American Development Bank. The fund amount will be US$ 1 billion.

Headquartered in Beijing, China Eximbank was created in 1994 and is fully owned by the Government of China.

China’s yuan is being proposed as a currency diversifier. The Government of China wants to promote its currency to other countries by raising the visibility of the yuan. Several South American countries are engaging in bilateral trade agreements with China and are using yuan in their currency swap agreements.

China’s National Council for Social Security Fund is planning to invest $1.5 billion in the China Development Bank. The money will be used to help strengthen the capital base of the bank. The fund can hold up to a 2.19% stake in the bank. The National Council for Social Security Fund has also invested in other major Chinese state banks such as the Industrial and Commercial Bank of China, Bank of China, and the Bank of Communications.

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Caijing reports, “The Government of Singapore Investment Corp will become the second-largest share holder of China Investment Capital Corporation (CICC) after it receives a substantial stake from Morgan Stanley for its exit.  The Government of Singapore Investment Corp (GIC), Singapore’s largest global investment vehicle, will become the second-largest share holder of China Investment Capital Corporation (CICC) after it receives a substantial stake from Morgan Stanley for its exit.

The China Securities Regulatory Commission (CSRC) said in a statement that it had on November 26 approved CICC’s application for the shareholding change that involved a stake of more than 5 percent in the company.  The transfer of shareholding is for Morgan Stanley’s exit from CICC, who plans to sell its stake to four institutions including GIC, a source close to the CSRC confirmed.  Sources close to the deal said the deal could be worth up to more than 1 billion U.S. dollars. Morgan Stanley would sell an 11 percent stake of CICC to Texas Pacific Group (TPG) and Kohlberg Kravis Roberts & Co. (KKR), the two private equity funds and the rest would be transferred to GIC and Great Eastern Life Assurance Co, a wholly-owned subsidiary of Great Eastern Holdings Limited which is controlled by Oversea-Chinese Banking Corporation Limited, according to the same sources.

Under completion of the deal, GIC will become the second-largest shareholder of CICC, from its initial holding of 7.35 percent.

Currently, Central Huijin Investment Ltd holds 43.35 percent of stake, Morgan Stanley with 34.3 percent, China National Investment & Guaranty Co., Ltd with 7.65 percent and GIC, Mingly Corporation with 7.35 percent each, the CICC said on its website.”

Read more: Caijing

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Xinhua reports, “Bank of China (BOC), the country’s fourth-largest lender by assets, said Friday it would raise up to 60 billion yuan (8.97 billion U.S. dollars) in a dual rights issue in Shanghai and Hong Kong stock exchanges to replenish capital.

In a statement filed to the Shanghai and Hong Kong stock exchanges, BOC said it will sell one share for every 10 existing shares and start taking subscriptions from existing investors on Nov. 3.

The new shares are priced at 2.36 yuan per share for A-share investors on Shanghai Stock Exchange or 2.74 HK dollars for H-share investors in Hong Kong, it said.

According to the lender’s equity structure, BOC will raise about 42 billion yuan (6.28 billion U.S. dollars) from A-share shareholders and 18 billion yuan (2.69 billion U.S. dollars) from H-share investors.”

Read more: Xinhua

Bloomberg reports, “Kazakhstan has joined Hong Kong billionaires Li Ka-shing, Larry Yung and Cheng Yu Tung to form a $400 million private equity fund that will help Kazakh companies list in the city, Prime Minister Karim Massimov said. Kazyna Capital Management JSC, a unit of the country’s sovereign wealth fund, will initially contribute $100 million and four Hong Kong partners, including Li’s Cheung Kong (Holdings) Ltd., will provide $300 million, the prime minister said in an interview yesterday.

“In Hong Kong, guanxi is very, very important,” he said. “We have trust in them, they are very serious partners, and they have trust in the government of Kazakhstan.”

“Guanxi” is a Chinese term that refers to personal relationships. Kazakhstan, the largest energy producer in Central Asia, has the world’s 11th-biggest proven oil reserves and is becoming an increasingly important source of natural resources for China, as well as Russia. Getting the nation’s supply of minerals, including coal, iron ore, nickel, gold and uranium, to market requires billions of dollars of investment in infrastructure, Massimov said. “This is just initial; $400 million for these type of businesses is peanuts,” he said.”

Read more: Bloomberg

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According to the Wall Street Journal, “China Investment Corp., the country’s $300 billion sovereign-wealth fund, was one of the biggest third-party investors in 3i Group PLC’s (III.LN) EUR1.2 billion growth capital fund raised earlier this year, a person familiar with the situation said Wednesday.

“3i has good ties with CIC and has been welcomed by the government there as it has been in India,” the person said, adding that 3i has been exploring raising a yuan fund that CIC could be involved in, although no decision has yet been taken.

In China, the growth of yuan-denominated funds, which don’t need government approval to buy assets there, has added to the competition. Like other international private equity firms seeking an edge in China, Blackstone Group (BX) and Carlyle Group LP are raising yuan-denominated funds, which come from local investors.

On Wednesday, CIC supervisory board Chairman Jin Liqun said the sovereign wealth fund is keen to continue forming partnerships with other fund groups in investing, but didn’t mention any specific deals.

“We have projects with different partners and to expand collaboration in the future,” Jin said in a speech at the private equity-focused Super Return Conference in Hong Kong Wednesday, but didn’t’ elaborate. “We seek to make superior risk adjusted returns and act as a stabilizing force in a world of volatility.”

Read more: Wall Street Journal

According to Reuters, “China should sell dollars and diversify its foreign exchange reserves if the United States sticks to loose monetary policy, the head of the Chinese sovereign wealth fund said in an article published this week.  Lou Jiwei, chairman of the $300 billion China Investment Corp, also offered policy advice to the United States, saying the best course of action would be for it to tighten monetary conditions while ramping up stimulus spending.  He said the United States did not have much to gain from monetary easing, because little cash was entering the real economy and a large amount was leaving the country via dollar-funded carry trades.  Under such conditions, the dollar would steadily depreciate, and Asian economies and oil exporters might lose faith in it as a global reserve currency, he said.

“For China, the chief tools to reduce economic risks are to strengthen regulation of capital flows, control liquidity through cash management, monitor asset markets and divert foreign exchange reserves to non-dollar assets,” Lou said.

The article was published this week as part of a book for the Second Summer Palace Dialogue, a meeting of American and Chinese economists that took place in Beijing.

It appeared that Lou had written the article at least several months earlier, but this was the first time that it had been published.  There is evidence that China has, in fact, stepped up its pace of foreign exchange diversification this year, cutting back its vast holdings of U.S. Treasuries and buying record amounts of Japanese and South Korean debt.  But Lou said that it was not too late for the dollar. A move toward tighter monetary policy would reduce expectations of depreciation, restrain the dollar-funded carry trade and support global financial stability, he said.  For the U.S. economy, tighter monetary policy could also pay unexpected dividends, he said.

“If the dollar carry-trade lessens and capital from Asian countries and oil-exporting countries continues to flow to the United States, then liquidity in the United States might even increase,” he said.”

Read more: Reuters

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General Motors needs to drive up excitement on its upcoming IPO. They are seeking cornerstone investors to shore up demand for the deal which is a common practice.  SWFs are financing sources for many corporations whether it’s a follow-on, PIPE or IPO.  The last IPO that a significant number of large SWFs participated in was Beijing based Agricultural Bank of China IPO.  The Agricultural Bank of China was the last of the big four Chinese state-owned banks to go public.  The total deal value was around US$ 22.1 billion, making it the biggest IPO ever, another milestone of the growth of the Chinese economy. The IPO of GM is expected to raise between US$15 – 20 billion in capital.

Why would a sovereign wealth fund want to participate in the GM IPO? [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

According to the Wall Street Journal, “Central Huijin Investment Ltd., the domestic-investment arm of China’s sovereign-wealth fund, will sell its first batch of bonds as soon as this month and aims to issue up to 187.5 billion yuan ($27.7 billion) of bonds by 2011 to help maintain its stakes in large state-controlled banks, a person familiar with the situation said Tuesday. The debt issue comes as Central Huijin faces increasing financing pressure in its efforts to maintain its controlling stakes in major domestic banks, which have been gearing up for share offerings and convertible-bond sales in recent months to boost their capital after a sharp increase in lending last year—the key platform of China’s stimulus measures—eroded their capital.”

Read more: Wall Street Journal

According to the CIC report, “From its inception in September, 2007 through the end of 2008, CIC deployed about USD 21 billion into the market. The gradual deployment of capital was appropriate for a new company particularly under the turbulent market conditions. However, as CIC built its capability and the global economic and investment environment started to show signs of recovery, it significantly stepped up its investment activities, making new investments of about USD 58 billion in 2009.

Investment Performance

1 Return on Capital is based on the accounting income of CIC’s global portfolio, and the cash income and cash dividend declared from its domestic portfolio companies. The return rate is calculated based on CIC’s registered capital of USD 200 billion. Under the equity accounting method, accounting income is generally larger than the cash dividend received from the domestic portfolio companies. Since CIC’s domestic investments are for long-term purposes and their disposals are under restriction, CIC believes cash returns to be more appropriate performance metrics for Central Huijin’s domestic financial institution investments.

2 Global Portfolio Return is based on the annual change in the fair market value of CIC’s global investments.”

According to the AFP, “Agricultural Bank of China on Tuesday confirmed plans to raise a world-record 23.2 billion dollars in a dual initial public offering in Hong Kong and Shanghai.  The last of China’s “big four” state banks to list said it would raise the money if the monster IPO is fully subscribed when it begins on Wednesday.

Major institutional investors including sovereign wealth funds have already expressed strong interest in the IPO, which is on course to surpass the previous record of 22 billion dollars set in 2006 by Industrial and Commercial Bank of China (ICBC).  AgBank said Tuesday that it planned to raise 13.1 billion US dollars from its Hong Kong IPO, with a price range of 2.88-3.48 Hong Kong dollars (37-44 US cents) a share. Xiang Junbo, chairman of AgBank, said government efforts to boost growth in China’s depressed central and western regions would help the rural lender.

“The county area business will be one of our key profit drivers,” he told a press conference in Hong Kong on Tuesday. “(AgBank) is well positioned to capitalise on China’s next wave of growth.”

The bank, which has been criticised for the amount of bad loans on its books, has worked in recent years to chop that figure, Xiang said.

Agbank’s prospectus said its bad debt ratio dropped from 4.32 percent in 2008 to 2.91 percent in 2009.

“The bank has made substantial improvement in the last few years,” Xiang said, referring to its credit review procedures.

The newly released prospectus said AgBank booked a profit of 65 billion yuan (9.56 billion US dollars) in 2009, up from 51.45 billion yuan in 2008. It is forecasting a 2010 profit of 82.9 billion yuan. Xiang also said a stronger yuan — demanded by the United States and other trading nations which claim they have been hurt by an unfairly cheap Chinese currency — could be “positive” for AgBank.”

Read more: AFP

According to the AFP, “Agricultural Bank of China’s initial public offering, set to be the world’s largest, has drawn 11 heavyweight investors who have stumped up 5.45 billion US dollars for the sale, a report said Thursday.

Shares in the company’s Hong Kong listing will be set between 2.88 and 3.48 Hong Kong dollars (37 and 44 US cents) ahead of their trading debut next month, Dow Jones Newswires said, citing a company prospectus.

A price range has not been revealed for the Shanghai portion of the listing.

The details came as AgBank — the last of China’s big four lenders to list its shares — kicked off an investor roadshow to drum up support for a sale that could draw almost 25 billion US dollars.

That would surpass the Industrial and Commercial Bank of China’s 22-billion-dollar IPO in 2006, which is currently the world’s biggest.

Gulf state investment funds Qatar Investment Authority and the Kuwait Investment Authority, US food giant Archer Daniels Midland, Australia’s media-to-heavy-equipment firm Seven Group Holdings, British Bank Standard Chartered and Dutch financial-services firm Rabobank are among the cornerstone investors, Dow Jones said.

The sale’s other major investors are: Singapore state investment company Temasek Holdings, United Overseas Bank, Hong Kong billionaire Li Ka-shing’s Cheung Kong (Holdings), tourism monopoly China Travel Services Group and state-run consumer group China Resources (Holdings).”

Source: AFP

According to Reuters, “Singapore’s state investment fund Temasek plans to invest up to $300 million in the Agricultural Bank of China, ahead of its roughly $20 billion IPO, a source with direct knowledge of the matter said on Saturday. Temasek’s commitment to China’s third largest bank is a positive step for the offering, though it is less than the $1 billion that AgBank’s underwriters are hoping to get from Middle East and Asian sovereign wealth fund cornerstone investors.

So-called cornerstone investors are a key layer of financial backing for an IPO. AgBank’s Shanghai-Hong Kong listing will be the world’s largest ever IPO if it exceeds $21.9 billion. Temasek declined to comment. AgBank could not immediately be reached. The source was not authorized to speak on the record about the deal.

Reuters earlier reported that Temasek, and sovereign funds from Kuwait and Qatar were expected to sign on to AgBank’s offering.

The Beijing-based bank, founded in 1951 by Mao Zedong as the rural unit of the central bank, is still known a customer base spread across China’s far-flung parts, though it does a have a major presence of most of the country’s major cities.”

Read more: Reuters

Central Huijin, part of the China Investment Corporation has a large stake in the Agricultural Bank of China.

Learn more about past direct SWF transactions: Sovereign Wealth Fund Transaction Database (SWFTD).

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Economic Observer News states, “The CIC has reached an agreement with the Ministry of Finance (MOF) to treat the ＄200 billion US dollars used to originally finance the company as assets rather than a debt, a source from the CIC told the EO. This means that CIC will no longer be required to make regular interest payments to the state, which will, to some extent, ease the pressure on CIC in terms of payments.

In late 2007, in order to fund CIC, the MOF bought foreign exchange from the central bank paid for by issuing special treasury bonds worth 1.55 trillion yuan (＄226.9 billion) at an annual rate of 4.3 percent. As a result, CIC has been required to pay about 66.65 billion yuan (＄9.76 billion) in interest to the state each year. However, this is about to change and CIC will, like other central state-owned enterprises, likely pay dividends at regular intervals to the state.”

read more: Economic Observer News

According to the Xinhua, “China’s Central Bank Governor Zhou Xiaochuan said Friday that the country’s foreign exchange reserve should not be seen as “an investment fund”, so it should not be looked on as a profit source.

“If the foreign exchange reserve can produce reasonable returns, it is good enough,” Zhou said at Peking University when delivering a speech.

China had reserves of 2.13 trillion U.S. dollars in June, the largest in the world.

He said the increase in the reserve could bring the country many advantages, adding that agencies using foreign exchange reserve to invest should endeavor to guarantee security and value appreciation, without specifying the names of the agencies. In 2007, China set up the China Investment Corporation, with a registered capital of 200 billion U.S. dollars. The Beijing-based company is investing in equities, fixed income and alternative assets worldwide.”

read more: Xinhua

China Daily states that, “The Qatar Investment Promotion Department is planning to establish an office in China next year to facilitate mutual investments between the two countries, a company executive said today.

The office will be set up in Beijing, according to Farzam Kamalabadi, President and Chairman of Future Trends International (Group) Corporation, a China-specialist US Corporation engaged in investment and trade consulting, media relations, and government lobbying.

The office will help Qatar investors, including Qatar’s sovereign wealth fund, to seek investment opportunities in sectors such as banks, real estate, water treatment, infrastructure and chemical in China, said Kamalabadi, who once served as senior adviser to a number of national oil systems such as Oman, Iran, Kuwait, and China.”

read more: China Daily

Asian Investor states, “NBIM received approval as a qualified foreign institutional investor (QFII) from the China Securities Regulatory Commission in October 2007 and now runs a fund worth roughly $200 million in China. The Shanghai office is also responsible for maintaining the fund’s Asia-Pacific portfolio, which as at end 2008, represented 16.2% of NBIM’s equity investments and 5.8% of its fixed-income portfolio.

Now NBIM wants to add an investment manager to head up its global technology, media and telecom, or TMT, portfolio to be based in Shanghai. There are also openings for a new CIO, COO, chief risk officer, as well as chief treasurer in its London and Oslo headquarters.”

read more: Asian Investor

Reuters reports that, “OPEC oil exporter Kuwait is looking to raise its stake in the Industrial and Commercial Bank of China(ICBC) and invest in Chinese energy and industrial sectors, its finance minister said on Friday. Speaking to Reuters on the sidelines of the World Economic Forum at the Dead Sea in Jordan, Mustapha al-Shamali also said the world’s fourth-largest oil exporter would not reduce its dollar-denominated assets. Kuwait is home to one of the world’s largest sovereign wealth funds, the Kuwait Investment Authority (KIA).

‘We have an investment in ICBC. We have a portion of it and we are going to enlarge it,’ Shamali said in an interview, without disclosing the size of the stake.

‘We could get our share from the market,’ he said.”

read more: Reuters

Li Yong

AFP reports that, ” China called Sunday for reform of the global currency system, dominated by the dollar, which it said is the root cause of the global financial crisis.

‘We should attach great importance to reform of the international monetary system,’ Chinese Vice Finance Minister Li Yong told the spring IMF/World Bank Development Committee meeting in Washington.

A ‘flawed international monetary system is the institutional root cause of the crisis and a major defect in the current international economic governance structure,’ Li said, according to a statement.

‘Accordingly, we should improve the regulatory mechanism for reserve currency issuance, maintain the relative stability of exchange rates of major reserve currencies and promote a diverse and sound international currency system.’

As the world’s main reserve currency, US dollars account for most governments’ foreign exchange reserves and are used to set international market prices for oil, gold and other currencies. As the issuer of the key reserve currency, the United States also pays less for products and can borrow more easily. Li did not name the dollar but in late March the People’s Bank of China Governor Zhou Xiaochuan said he wanted to replace the US unit which has served as the world’s reserve currency since World War II.”

read more: AFP

According to Xinhua, “China said Friday that its investments of foreign exchange reserves remained profitable last year despite the global financial crisis that sent financial assets shrinking in value, dispelling concerns of huge losses with such investments.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Press release states “Today I approve the application by Hunan Valin Iron and Steel Group for up to a 17.55 per cent shareholding in Fortescue Metals Group, subject to the formal and strict undertakings I have sought from Hunan Valin, and which have also been agreed to by Fortescue Metals Group.

These undertakings are as follows:

Any person nominated by Hunan Valin to Fortescue’s board will comply with the Director’s Code of Conduct maintained by Fortescue;
Any person nominated by Hunan Valin to Fortescue’s board will submit a standing notice under the Corporations Act 2001 of their potential conflict of interest relating to Fortescue’s marketing, sales, customer profiles, price setting and cost structures for pricing and shipping; and
Hunan Valin and any person nominated by it to Fortescue’s board will comply with the information segregation arrangements agreed between Fortescue and Hunan Valin.

Hunan Valin will report to FIRB on its compliance with these undertakings. These undertakings ensure consistency with Australia’s national interest principles for investments by foreign government entities, which I set out in February 2008. They ensure the appropriate separation of Fortescue’s commercial operations and customer interests, and support the market-based development of Australia’s resources.

Penalties for non-compliance with these undertakings are contained in the Corporations Act 2001 and breaches of the Code of Conduct can lead to the director’s removal from the company board.

I note Fortescue’s involvement in negotiating the above arrangements, and its responsibility to its shareholders for enforcement of the company’s Directors’ Code of Conduct.

Under the proposal, Fortescue has agreed to issue new shares to Hunan Valin to raise funds for the next expansion phase of its iron ore mining operations in the Pilbara. Hunan Valin also intends to acquire some shares from other shareholders. Consistent with this approval and with its agreement with Fortescue, Hunan Valin will not hold above 17.55 per cent in total. It is on these bases that I have approved the acquisition under the Foreign Acquisitions and Takeovers Act 1975.”

read more: Press Release – Australia – Treasurer

Zhou Xiaochuan

Zhou Xiaochuan writes, “the outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question,i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above question, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system.

Theoretically, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history. The crisis again calls for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability.”

read more: Paper: Reform the International Monetary System

read more: People’s Bank of China

The NY Times reports that ,”the Chinese premier Wen Jiabao expressed concern on Friday about the safety of China’s $1 trillion investment in American government debt, the world’s largest such holding, and urged the Obama administration to provide assurances that its investment would keep its value in the face of a global financial crisis.

The Chinese premier Wen Jiabao spoke at a news conference on Thursday at the end of the Chinese parliament’s annual session.

Speaking at a news conference at the end of the Chinese parliament’s annual session, Mr. Wen said he was worried about China’s holdings of Treasury bonds and other debt, and that China was watching United States economic developments closely.

‘President Obama and his new government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures,’ Mr. Wen said. ‘We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.’”

read more: NY Times