Archive for December, 2009

Geely taps China banks to back $1.8 billion Volvo deal (Reuters)

Tuesday, December 1st, 2009 | Finance News

HONG KONG (Reuters) –
Geely, the Chinese carmaker picked as the preferred bidder for Ford Motor's (F.N) Volvo unit, is seeking at least $1 billion in loans from Chinese banks to finance its $1.8 billion bid, sources said on Tuesday.

Home-grown Geely, which means "lucky" in Chinese, is hungry for modern and innovative technologies from the Swedish brand to upgrade its car lineup and tap the auto market in China, the world's biggest.

At least three major Chinese banks including Bank of China (3988.HK) (601988.SS), China Construction Bank (0939.HK) (601939.SS) and Export-Import Bank of China had agreed to extend loans to Zhejiang Geely Holding Group, said the banking sources briefed on the plan.

"Money is not a problem for Geely," said a source. "They definitely have strong support from Chinese banks and there are a number of private equity funds queuing up to invest in Geely."

The sources asked not to be identified as they were not authorized to speak to the media.

Export-Import Bank of China is a policy lender wholly owned by the Chinese government and directly led by the cabinet. Bank of China is China's top foreign exchange lender. China Construction Bank is the country's No.1 property lender.

Last month, Volvo's union leaders held their first talks with Geely but were still waiting to see Geely's financing plans for the loss-making Swedish carmaker.

A Geely spokesman in Beijing declined to comment on the loan plans but said Geely is still in negotiations with Ford to finalize details of the takeover. He declined to elaborate or comment on the timeframe for the deal, which analysts and industry sources expect to be finalized by early next year.

All the three Chinese banks involved said they would not comment on specific loans to clients.

Last week, Geely reached agreement with Ford on intellectual property rights (IPR) issues in its bid for Volvo, clearing a major barrier for the deal.

The remaining issues for Geely to negotiate with Ford, such as long-term strategy for Volvo's sales and production, would be much easier to solve, said an industry source close to Geely.

Geely also needs to build relations with Volvo's management, union leaders and the Swedish government, which are part of the negotiations.

ALL CHINA FUNDS?

Global carmakers such as Volkswagen (VOWG.DE) and General Motors (GM.UL) are stepping up their presence in China, where Geely sells models such as the Free Cruiser and Geely Kingkong.

Helped by government subsidies, the Chinese car market overtook the United States as the world's largest earlier this year. China has plenty of room to promote cars sales further in 2010, a senior Chinese government official said on Tuesday.

The loans backing Geely's bid for Volvo are expected to have a five-year tenor, said another of the sources.

Currently, no foreign banks are involved but it is possible Geely may tap one or two foreign banks for some lending contributions in an effort to downplay Western concerns that financing is largely dependent on Beijing, said the sources.

Standard Chartered (2888.HK) (STAN.L) and HSBC Holdings Plc (HSBA.L) (0005.HK) are Geely's principle banks, according to its annual report.

Bohai Industrial Investment Fund, a private equity fund backed by the Chinese government, was also in talks with Zhejiang Geely Holding Group, the parent of Hong Kong-listed Geely Automobile (0175.HK), to support its bid for Volvo, said the sources.

However, no agreement between Bohai and Geely had been reached and Bohai's investment would only be a small part of Geely's acquisition of Volvo, said the sources.

There were also some other China-focused private equity funds in talks with Geely about financing, said one source, declining to elaborate.

In September, Goldman Sachs (GS.N) invested $334 million in Geely Automobile, although Geely said Goldman's money would mainly support its domestic car plant expansion.

Ford and Geely have not disclosed a possible sale price for the Volvo deal yet but media reports had put it closer to $2 billion than the $6.45 billion Ford paid for Volvo in 1999.

Citigroup Inc (C.N) and JPMorgan (JPM.N) are advising Ford, while Rothschild is advising Geely.

(Additional reporting by Quentin Webb in London, Alison Leung in Hong Kong, Fang Yan in Shanghai and Langi Chiang in Beijing; Editing by Lincoln Feast)

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Yen slides as BOJ meets, Asia stocks edge higher (Reuters)

Tuesday, December 1st, 2009 | Finance News

HONG KONG (Reuters) –
The yen tumbled on Tuesday after the Bank of Japan called an emergency policy review to discuss ways to boost the ailing economy, but it regained some ground after the meeting when the central bank did not go as far as some investors had expected.

Shares in Asia firmed as fears about a global contagion from Dubai's debt problems faded, while European stocks were expected to open slightly higher.

Dubai's main share index (.DFMGI), however, slumped 6.3 percent in early trade, skidding for a second day despite efforts by Dubai World, the company at the heart of the debt crisis, to restructure about $26 billion in debt.

The yen drew early selling as the Bank of Japan announced a special policy meeting, fueling expectations it would return to quantitative easing -- effectively flooding the system with cash -- to spur growth and help tackle deflation.

The Nikkei (.N225) rallied 2.4 percent on hopes for more growth boosting measures, while Japanese government bonds soared on expectations that the BOJ may buy more of the debt as part of further monetary easing steps.

Moves announced by the central bank after the meeting, however, appeared far more modest. The BOJ said it would introduce a new operation to provide funds for three months at a fixed interest rate of 0.1 percent, in a bid to enhance monetary easing by trying to bring down longer-term rates.

The dollar rose more than 1 percent against the yen to 87.49 yen after the announcement of the emergency meeting, but pared gains to 86.80 yen after the BOJ announcement, still up about 0.4 percent on the day. JGB futures also trimmed early gains.

"It is a bit disappointing for the markets especially when they could have done much more ... such as increasing quantitative easing or raising JGB buybacks. The market was looking for more, and that is one reason why dollar/yen has dropped so sharply after the move," said Mitul Kotecha, global head of foreign exchange strategy at Calyon in Hong Kong.

"In the short term it doesn't do anything for the markets and we have to wait to see the concrete outline of the government's stimulus packages. They have a problem of deflation and a rising exchange rate, and this is not going to solve either of them."

Japanese officials have sounded increasingly worried about the yen's strength, which will hurt exporters and potentially derail the country's economic recovery.

In contrast, the Aussie dollar quickly gave up gains in reaction to the Reserve Bank of Australia's decision to raise interest rates by 25 basis points to 3.75 percent and fell back amid uncertainty about the timing of the next rate rise.

"The (central bank) statement didn't suggest any urgency," said Robert Rennie, a currency strategist at Westpac in Australia.

Shares in Australia (.AXJO) rose 0.4 percent after the rate increase, the third in as many months. The central bank said adjustments in monetary policy would help sustain economic growth.

QANTAS JUMPS

Most Asian stock markets saw modest gains as fears about global fallout from Dubai's debt woes continued to ease, and as tech stocks were boosted by analysts' forecasts for rising demand for PCs and flat-screen TVs next year.

The MSCI index of Asia Pacific stocks traded outside Japan (.MIAPJ0000PUS) rose 0.9 percent, while the Thomson Reuters index of regional shares (.TRXFLDAXPU) was flat.

"Dubai is still a risk but most of Asia has very limited exposure to Dubai other than isolated banks. So people may want to avoid the banks but most other companies are okay," said Francis Cheung, an equities strategist at CLSA in Hong Kong.

Singapore's DBS Group (DBSM.SI), Southeast Asia's top lender, said it had $1.28 billion exposure to Dubai but its shares were flat by early afternoon.

U.S. Treasuries were steady in Asia ahead of the Institute of Supply Management index for November and pending home sales, both due out of the United States at 1500 GMT.

Economic data out of Asia, including China purchasing managers' indexes [ID:nPEK127087][ID:nBJB003590] and a near 20 percent rebound in South Korean exports last month [ID:nSEO125047] indicated a regional recovery continued to gain momentum, but the optimistic news has already been largely factored into share prices.

Shares in Australian carrier Qantas (QAN.AX), however, jumped 3.9 percent after the airline announced a 7 percent rise in October passenger numbers.

Oil prices were flat at around $77.20 a barrel after climbing 1.6 percent on Monday on news that Iran had restructured its naval forces for operations in the event of a conflict and had detained five Britons after their yacht strayed into Iranian waters.

Gold dipped to $1,178.20 an ounce, from a New York close of $1,179.10, but analysts said its uptrend was intact as its appeal as a safe haven was likely to persist and as central banks continued to show interest in increasing their holdings.

(Additional reporting by Koh Gui Qing in SYDNEY and Satomi Noguchi in TOKYO; Editing by Kim Coghill)

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UAE stock markets two-day drop tops 10 percent (AFP)

Tuesday, December 1st, 2009 | Finance News

DUBAI (AFP) –
The Dubai and Abu Dhabi stock markets plunged on Tuesday by 6.25 percent and 5.91 percent respectively in early trade, adding to the previous day's heavy losses amid continuing concern over Dubai's debt woes.

Investors were alarmed by a finance ministry official's statement on television that the government is not guaranteeing the 59 billion dollars of debt held by massive state-controlled conglomerate Dubai World.

The market was also digesting a statement in the middle of the night from Dubai World saying that it wants to change the repayment terms of 26 billion dollars in debt and restructure the companies that owe the money.

The DFM index in Dubai dropped 121.33 points to 1,819.33, while the Abu Dhabi Securities Exchange index fell 157.68 points to 2,510.55 in early trade.

Since the two markets reopened on Monday following a four-day holiday for the Muslim festival of Eid al-Adha, Dubai's market has shed about 13 percent of its value while Abu Dhabi has lost around 14 percent.

Dubai's leading real estate sector fell by 8.55 percent on Tuesday, near the one-day maximum-allowed drop of 10 percent, while the finance and investments sector shed 9.6 percent of its value.

Giant property developer and market leader Emaar sank by 9.87 percent, following the pattern of its Monday movement, while Dubai Islamic lost 9.84 percent of its value.

Abu Dhabi's real estate sector also plummeted 9.9 percent, while the banking sector fell 6.46 percent.

Dubai last week announced it wants to halt payments for six months on its entire debt, sending jitters across global financial markets.

In an interview with state television broadcast after the markets closed on Monday, Dubai Department of Finance head Abdulrahman al-Saleh said: "It is true that the government is the owner, but as the firm has several activities and is exposed to different sorts of risks, the decision was from the day of its establishment that the company would not be guaranteed by the government."

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