Archive for September, 2010

Heavy in dollars, China warns of depreciation (Reuters)

Thursday, September 2nd, 2010 | Finance News

BEIJING (Reuters) – China on Friday offered a rare glimpse into its foreign exchange reserves, confirming that they are overwhelmingly allocated in dollars, while a central banker said the mountain of cash could face depreciation risks.

The Chinese government's currency reserves, the world's largest such stockpile at $2.45 trillion, are held roughly in line with what was described as the global average: 65 percent in dollars, 26 percent in euros, 5 percent in pounds and 3 percent in yen.

The report in the China Securities Journal, an official newspaper, cited unnamed reserve managers.

The allocation of Chinese foreign exchange reserves is considered to be a state secret, but analysts have long estimated that about two-thirds are invested in dollar assets.

Separately, Hu Xiaolian, a vice governor with the People's Bank of China, warned that depreciation loomed as a risk for foreign exchange reserves held by developing counties.

"Once a reserve currency's value becomes unstable, there will be quite large depreciation risks for assets," she wrote in an article that appeared in the latest issue of China Finance, a Chinese-language magazine published under the central bank.

She reiterated China's long-standing discomfort with a global financial system dominated by a single currency in the dollar.

"The outbreak and spread of the global financial crisis has highlighted the inherent deficiencies and systemic risks in the current international currency system," she said.

"A diversified international currency system will be more conducive to international economic and financial stability," she added.

To that end, developing countries must speed up reform of their financial markets, and China would work to promote greater cross-border use of the yuan, she said.

DIVERSIFICATION

There have been signs in recent months that Beijing has stepped up the pace of diversification of its foreign exchange reserves away from dollar assets.

Chinese net buying of Japanese debt has surpassed 1.7 trillion yen this year, far surpassing its record of 255.7 billion yen in 2005.

China has also raised holdings of South Korean bonds by 2.48 trillion won ($2.11 billion) in the first seven months of this year from 1.87 trillion won at the end of last year. However, Chinese investors only started buying South Korean bonds in the middle of 2009.

At the same time, China has slightly cut back its vast holdings of U.S. Treasuries, from $894.8 billion at the start of the year to $843.7 billion in June, according to the most recent data. China remains the biggest single holder of U.S. government debt.

But analysts have also warned against reading too much into the apparent shifts in the flow of cash from China. Like any investor with commercial interests in mind, Beijing has shown a readiness to shift its strategy depending on what it sees as good buys at the time.

The China Securities Journal laid out the prospects for a shift back to the dollar in the near term.

"It is unlikely that China will increase purchases of Japanese bonds in the coming months because the yen might weaken at any time," the newspaper said.

"China is very likely to increase purchases of U.S. Treasuries in September. The possibility for China to buy more Korean bonds can't be ruled out," it added.

(Editing by Ken Wills)

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China approached Canadian fund on rival Potash bid (Reuters)

Thursday, September 2nd, 2010 | Finance News

MELBOURNE/TORONTO (Reuters) – Chinese and other investors have approached at least one big Canadian pension manager about a bid for Canada's Potash Corp to rival BHP Billiton's $39 billion hostile offer.

The disclosure by Alberta Investment Management Corp, which manages some C$70 billion ($67 billion) in public sector pension funds, is one of the first pieces of hard evidence to back up speculation that China is looking for a way to derail a takeover of Potash Corp by the powerful Anglo-Australian miner.

AIMCo said it was not interested, because the economics did not work.

China's state-owned chemicals giant Sinochem has reportedly hired HSBC to evaluate options, and chatter persists that sovereign wealth funds, such as China's $300 billion China Investment Corp, may also be seeking a bid of some kind.

Given the size of the deal, all major investment banks not working with BHP or Potash Corp are pitching possibilities to Chinese clients, multiple investment banking sources in Asia have told Reuters.

But so far, no formal counter bid has emerged, only talk. The hefty price tag is still prohibitive for many potential suitors, bankers say.

Shares in Potash closed up 1.8 percent at $148.55 on Thursday, 14 percent above BHP's $130 offer price, while BHP shares edged up 0.3 percent on Friday.

CANADIAN CONCERNS

The possibility of Chinese involvement in a valuable Canadian resource has raised concerns in Saskatchewan, which is worried that a takeover of its largest company by a foreign firm or major customer could affect jobs and government revenue.

BT Financial Group portfolio manager Tim Barker in Sydney said the interest in Potash Corp from China, as it seeks to secure the future supplies of fertiliser it needs to rapidly boost food production, potentially changed the dynamics of the deal.

"Eventually it is an interesting line to draw between an independent company important to a province, and allowing it to go to either a customer with a different set of objectives or let it go to a bigger independent company. It will test a few nerves," Barker said.

Saskatchewan Energy Minister Bill Boyd has raised concerns about China buying into Potash Corp and about BHP's stated intent to eventually market its potash offshore on its own, rather than through the export consortium Canpotex.

The state said it had asked the Conference Board, a nonprofit research organization, to examine the effect of a takeover, including the conditions Saskatchewan might ask the federal government to impose on a deal and ways to mitigate risks from BHP's bid and any others that could come forward.

ENERGY OPTIONS?

For its part, BHP had been eyeing a major acquisition in the oil and gas sector over the past year, but was unlikely to move on its ambitions while it is tied up with its bid for Potash Corp, a source said on Friday.

BHP, flush with cash since abandoning a roughly $140 billion takeover of rival Rio Tinto in 2008, has been on the hunt for deals to cement its position as the world's largest diversified miner.

It considered, then abandoned, a joint offer with Royal Dutch Shell last year for Australian oil and gas firm Woodside Petroleum worth some A$35 billion ($31.9 billion), the Australian newspaper reported on Friday.

BHP did not return calls seeking comment on the newspaper report, which also cited an unnamed global energy industry figure as saying the mining giant may also be interested in Anadarko Petroleum Corp.

"The problem with Woodside is it is a very expensive oil company and because there is always takeover speculation, it is very hard to make the numbers work," a source familiar with the situation told Reuters.

BHP Chief Executive Marius Kloppers is currently focused on wooing Potash shareholders and BHP's own investors in four continents about the merits of the offer.

He is expected to spend the next few weeks shuttling between Europe and North America as he tries to clinch his first major deal after three years on the job.

"They are pretty busy right now, but they are a big company so within six to 12 months of getting one deal done there could be presumably be another one," the source added.

Analysts poured cold water on the notion of a second simultaneous major deal, even for a mining giant with BHP's financial muscle.

"I would have thought it unlikely for BHP to be looking at two large acquisitions at the same time. The size of the two transactions matter," said BT's Barker.

(Additional reporting by Narayanan Somasundaram in Sydney and Joseph Chaney in Hong Kong; Editing by Ed Davies and Lincoln Feast)

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S.Korea’s Kia to recall 35,000 cars in US (AFP)

Thursday, September 2nd, 2010 | Finance News

SEOUL (AFP) – South Korea's second largest carmaker Kia Motors said Friday it is recalling about 35,000 vehicles sold in the United States due to faulty wiring in interior lights that could cause fires.

On Tuesday the company said it would recall about 18,000 vehicles sold domestically because of the same problem.

Most vehicles subject to the US recall were made in South Korea except for the Sorento R, which was produced at Kia's factory in the US state of Georgia, a company spokesman said.

The US recall affects about 24,000 Soul hatchbacks produced between September 2009 and June this year and some 11,000 Sorento sport utility vehicles made in the same period.

No accidents or injuries due to the defective wiring have been reported.

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