Feb 10 2008
china flexes its financial muscle
I saw two articles that I thought can be partially aggregated because they both have to do with Chinese flexing its financial muscles. This is important as Chinese corporate attorneys should have reason to cheer of future international deals.
From Asia Sentinel (h/t to CDT):
The obscure China Development Bank is to be transformed from policy lender to international player
The China State Council’s plan to turn the China Development Bank into a commercial institution should transform what has been an obscure policy bank into a global financial player. It is also an indication of how China, besides routing investments through its sovereign investment fund, intends to use some of its massive US$1.4 trillion in foreign exchange reserves.
Approval should come soon for the 14-year-old bank to list on the stock market in the first half of this year, and it should quickly become both a major lender to the booming domestic market and an international investor following both its own commercial instincts and national policy objectives. And, while it may be obscure, it is already China’s most profitable bank and one of the biggest bond issuers in the country.
Even before the change, the bank has been aggressively carving out a foreign presence. As an indication of its ambitions, it acquired a stake in Barclays Bank last July, has invested in six overseas funds, including two worth a combined US$10 billion in Africa and Venezuela, and was about to bid for a stake in Citibank in January when the State Council vetoed the idea. It is looking eagerly for other foreign acquisitions.
Note the words “global financial player” and “overseas funds”. What does this mean for the lawyers? Corporate work of all sorts. I foresee M&A (perhaps reverse M&A would be more accurate), corporate securities, and financial work springing up for not only Chinese attorneys, but also foreign attorneys involved in China work.
This news was big enough already, but here is another article from China Digital Times entitled, “In the Midst of Market Woes, China May Invest Even More,” which states:
In China’s latest move to flex its financial muscle, The Wall Street Journal is reporting that China’s state-owned investment fund, China Investment Corp., may invest upwards of $4 billion in a new fund being started by J.C. Flowers & Co.
In an interview with The Wall Street Journal last week, Lou Jiwei, chairman of CIC and former vice minister of finance for China, said the state investment fund was looking to invest in “portfolios” of companies, rather than individual firms.
An investment in a fund managed by J.C. Flowers would fit that criteria. The U.S. firm, run by former Goldman Sachs banker J. Christopher Flowers, specializes in buying financial companies. His firm made headlines recently for backing out of buying student-loan provider SLM Corp., better known as Sallie Mae, for $25 billion.
Further in the article, speculation as to why J.C. Flowers stems from a report that CIC had invested $5 billion in Morgan Stanley in December of 2007.
By investing in a new fund being formed by Flowers, CIC would be able to indirectly invest in different companies and also inoculate itself from any political backlash that could arise from investing directly in iconic American companies.
It is also worth noting that the Wall Street Journal has found a new way of referring to China’s investment capital (emphasis added):
CIC was formally established in September to earn better returns on China’s huge pile of foreign exchange reserves, which now total more than $1.5 trillion.
As a point of reference, that “huge pile” was last reported at $1.4 trillion just 4 months ago.
I think this validates my thoughts regarding the bright future for China corporate work (financial, M&A/reverse M&A, securities… and perhaps PE, LBO, cap markets). I will not complain about such a predicament.
