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Chinese firms more cautious on foreign buyouts

admin — Mon, 15 Mar 2010 01:00:43 +0000

Chinese firms more cautious on foreign buyouts
Chinese companies are planning to take a more cautious approach to foreign acquisitions, avoiding outright buyouts and seeking more partnerships and alliances, a report by the Economist Intelligence Unit said on Tuesday.
According to the report, among survey respondents who say they are definitely or likely to make an overseas investment, 47 percent would prefer to strike either joint ventures (29 percent) or alliances (18 percent) while only 27 percent say they will do so through acquisitions.
"Our analysis of transactions worth more than $50 million between 2004 and 2009 shows that half the deals involved the buyer taking at least 50 percent ownership of the target. But Chinese executives are beginning to sense that this may not be the best approach, not least because it can set off alarm bells among the public and regulators," said Xu Sitao, China chief representative of the Economist Group.
Chinese companies made 298 cross-border acquisitions in 2009, with much of those investments welcomed by cash-strapped Western companies that would be hard-pressed to survive without it. But China\’s buying spree has raised a number of concerns, particularly where it has involved State-owned enterprises (SOEs).
And Chinese companies are discovering just how difficult it can be to get mergers and acquisitions (M&A) right, especially when they are cross-border deals. These factors have encouraged companies to lower their ambitions.
"Multiple investments of minority stakes in different companies in different countries can give a Chinese company many valuable \’windows\’ to learn about management and technology in different markets without triggering foreign investment review or the political pressure associated with \’control\’ issues," said Stephen Harder, managing partner of law firm Clifford Chance LLP (China).
Meanwhile, the report showed that outbound M&As remains dominated by SOEs. According to analysis of deals worth more than $50 million between 2004 and 2009, an overwhelming majority of China\’s outbound M&A transactions – 81 percent – were made by State-owned entities.
"This will remain a cause for concern abroad, not only because many deals involve control of natural resources but also because State ownership seems to confer unfair advantages on the acquired companies," said Alison Kennedy, managing partner of strategy with consulting firm Accenture in China.
In the survey conducted for the report, 82 percent of respondents cited a lack of management expertise in handling M&As as the biggest challenge for Chinese companies making purchases abroad. Only 39 percent feel they know what is required to integrate a foreign acquisition. And only 39 percent of survey respondents say they had identified attractive targets within their chosen geographic markets – increasing the risk that Chinese buyers will succumb to the temptation to buy assets that have become available as a result of the global financial crisis, rather than focusing on carefully researched targets.
The report is based on in-depth interviews with large Chinese companies with extensive investment experience abroad, an online survey of 110 Chinese executives and interviews with several foreign participants and advisers to Chinese deals overseas.
In addition, the report analyses available data on Chinese companies\’ cross-border transactions over the past five years, focusing on deals worth more than $50 million.

Huawei net profit more than doubles in 09

admin — Mon, 15 Mar 2010 00:59:43 +0000

Huawei net profit more than doubles in \’09
Huawei, a China-based leading telecommunications solutions provider, said Wednesday its net profit in 2009 reached 18.3 billion yuan (2.68 billion U.S. dollars), more than double that in the previous year.
Net profit for 2008 was 7.85 billion yuan.
Business revenue was 149.1 billion yuan, up 19 percent year on year, Huawei said in its annual business report.
Huawei\’s chief sales and services officer, Hu Houkun, said the company\’s steady growth was a result of a clients-oriented innovation strategy, which better helped telecommunications service providers increase profits and strengthen competence.
The company now serves 45 of the top global 50 telecommunications providers, up from 36 in 2008, said Hu Houkun.
The company expects a further 20 percent growth in sales this year as the convergence of fixed and wireless telecommunications networks, and intelligent devices are both growing markets for the company.

Geely-Volvo deal financing totals $2.7b

admin — Mon, 15 Mar 2010 00:58:43 +0000

Geely-Volvo deal financing totals $2.7b
China\’s Zhejiang Geely Holding Group has lined up total financing of $2.7 billion to back its purchase of Ford Motor\’s Volvo car unit, sources said on Monday.
The extra $900 million above the reported purchase price will allow the Chinese auto maker to grow its business and draw down capital during fallow cycles in the auto industry.
Ford and Geely announced their deal on March 28, saying that China\’s largest privately-run car maker would pay $1.8 billion for Volvo.
The breakdown of the offer includes a $200 million note presented by Ford, $1.6 billion in equity and $900 million in so called working capital, the sources said, a sum that can be used for new product investments, launch costs, potential plant upgrades and rainy day money to weather cyclical downturns.
Of the $1.6 billion in cash, a small majority comes from Geely, while the rest comes from provincial Chinese government investment vehicles, the sources said, adding that the remaining money comes from Chinese and overseas lenders.

In December banking sources briefed on the plan said major Chinese banks including Bank of China, China Construction Bank and Export-Import Bank of China had agreed to extend loans to Geely.
It is not clear if these banks were among the lenders providing working capital in the deal unveiled on Sunday.
One of the sources said that Volvo also has around $450 million in cash.
"The big thing here though is that it (the purchase) is the first of its kind," the source said, who asked not to be named because he is not authorized to speak on the record about the transaction.
"This deal does change the game significantly. In 10 years time, the Chinese auto market will double the size of the US market."
A spokesman for Geely declined to comment.

Ship builder CSSC net profit down 40% in 2009

admin — Mon, 15 Mar 2010 00:57:43 +0000

Ship builder CSSC net profit down 40% in 2009
China State Shipbuilding Co (CSSC) Holdings Ltd, the country\’s leading ship builder, announced Monday that net profits in 2009 shrank by 39.88 percent due to declining orders and prices hit by the global economic slowdown.

The Shanghai-based firm said in its 2009 annual report that its net profit fell to 2.5 billion yuan ($366.2 million).
Its annual business revenue dropped 8.74 percent to 25.2 billion yuan last year from 2008, according to the report.
Its A-share stock price gained 2.25 percent to 72.39 yuan per share on Monday, with the benchmark Shanghai Composite Index advancing 2.09 percent to 3,123.8 points.

China Lodging surges in Nasdaq debut

admin — Mon, 15 Mar 2010 00:57:43 +0000

China Lodging surges in Nasdaq debut
Shares of discount Chinese hotel chain China Lodging Group Ltd rose as much as 27 percent above their initial public offering price on Friday as investors bet that rising incomes in China would increase travel.
The shares opened at $13.62 and rose as high as $15.50 in their Nasdaq debut. They closed at $13.92. The company sold 9 million American Depositary Shares at $12.25 each on Thursday, raising $110.25 million.
China Lodging Group rents budget hotel rooms in China through three chains. Its website, ir.htinns.com, sports photos of hotel rooms, including one with bunk beds.
Most of China Lodging\’s hotels are in big cities in the industrialized eastern part of the country, where business travelers have helped to ratchet up the market for budget hotels, analysts said.
Lily Ng, a senior vice president at Jones Lang LaSalle Hotels in Shanghai, said domestic as well as foreign travel may increase in China.
"Traveling among Chinese is also becoming more frequent as incomes increase. Another factor driving hotel demand is increasing commercial and trading activity, which is spurring the development and expansion of companies in China."
As China\’s hotel sector expands, analysts have expressed concern that growth could be too rapid, leaving a glut of rooms without sufficient demand.
Media inside China have reported that the Chinese government could take steps to cool the hotel sector.
When China wanted to slow growth of its real estate sector, the government said it would require some large State-owned enterprises whose core business was not in the property sector to withdraw from the business.
Legal questions
China Lodging, sharing characteristics with other Chinese IPOs, said in its prospectus that it might not be in compliance with certain Chinese laws.
It wrote in its prospectus that it does not hold land-use rights for any of its properties, and it holds some leases without the permission of the property owners or government authorities. It also wrote that it may be afoul of labor law.
In the run up to China Lodging Group\’s IPO, IPOfinancial.com President David Menlow said such non-compliance issues were apparently not a major concern, given that Goldman Sachs and Morgan Stanley were proceeding with the offering.
The company\’s founder and executive chairman, Qi Ji, also has experience in the industry, having co-founded online travel services provider Ctrip.com?and Chinese discount hotelier Home Inns & Hotels Management Inc.
"Okay hotel"
China Lodging runs three hotel chains in China: HanTing Express, its main chain; HanTing Seasons, its premium chain; and HanTing Hi Inn, its discount chain.
At a Seasons hotel in downtown Shanghai, for example, rooms rent for 300-400 yuan ($43.95-$58.60) a night. The hotel is less than a four minute walk from a shopping mall and subway.
Aimed at mid-level executives and business owners, a room at the Seasons features modern wooden furniture, a black leather chair and large windows.
"It is not bad. It is quite an okay hotel, better for young people. We chose it because our conference is just opposite. It is clean, good for a short trip," said Zhang Lihun, 46, who works in the export business and was in town for a three-day conference.
Another guest, 30 year-old software company employee Guan Kun, in Shanghai for two days, said the hotel was loud at night and he could hear street noise, but the location was convenient.
The hotel group aims for broad appeal, not just business people, and this is reflected on its website, which features an animated cartoon horse.
An employee of China Lodging Group explained that the horse is a nod to the chief executive, who was born in the year of the horse. "It is representative of Chinese history and symbols," the employee said.

Sinopec cleared from Daimler bribery case

admin — Sun, 14 Mar 2010 23:59:43 +0000

Sinopec cleared from Daimler bribery case

China Petroleum & Chemical Corp (Sinopec) extricated itself from the Daimler bribery case, saying the employee involved in the case had been sentenced to prison years ago, the Beijing Times reported Friday, citing a company spokesman.
The US Department of Justice accused German automaker Daimler AG of violating US bribery laws by paying off government officials in at least 22 countries and regions. Sinopec and China National Petroleum Corp (CNPC) were involved in the case.
Sinopec found in 2004 the former employee had taken bribes from Daimler. Two years later, the man surnamed Du was sentenced to seven years, according to Tan Dazhong, spokesman for Sinopec\’s subsidiary China Petrochemical International Co Ltd (Sinopec Intl), where Du was previously employed.
Sinopec Intl has cut off business relations with Daimler since then, Tan said. His company has been asking suppliers to sign agreements on business ethics as a supplement to each purchase contract since 2007.
CNPC said it is investigating the case, according to the paper.
Daimler\’s operation in China is not affected by the case, and it is still working on the joint venture with Beiqi Foton Motor Co, which is expected to be completed in April, the paper said, citing people familiar with the matter.

BYD hopes to spark sales of electric car

admin — Sun, 14 Mar 2010 23:58:43 +0000

BYD hopes to spark sales of electric car

Chinese carmaker BYD Co kicked off retail sales of its electric-hybrid vehicle Monday, but is banking on the possibility a proposed government subsidy will spark sales of the vehicle in China.
The Warren Buffett-backed company launched the new model, the F3DM, on Monday at its headquarters in Shenzhen.
With a window-sticker price of 169,800 yuan ($24,855), sales may start off slow as car buyers may wait until plans for a government subsidy are finalized in July.
The updated, low-emission version has a solar panel on the roof of the car, which allows it to run on gasoline, electricity and solar energy.
The F3DM has a range of about 60 miles on electric-only power.
BYD introduced its plug-in hybrid to corporate and government-agency customers in December 2008 and supplied around 100 of the vehicles in 2009.
"We hope that the government starts the subsidy policy as soon as possible then we can offer electric cars with attractive prices to Chinese car buyers," said Xu An, BYD\’s spokesman.
Analysts said that the car\’s success would depend on government subsidies due to its formidable price. BYD\’s gas-powered F3 model, which utilizes the same body style as the F3DM, is currently priced at between 59,800 and 89,800 yuan.
If the government does choose to subsidize the cars, retail buyers could enjoy a break of up to 50,000 to 60,000 yuan for each car, Miao Wei, vice-minister of Industry and Information Technology, said earlier this month.
A decision on the subsidy is expected to be formally announced in July.
"As Chinese consumers are very sensitive to pricing, the amount of the subsidy is key to the development of electric cars in China," said Cheng Yuan, an independent auto-industry analyst.
"If the price is too high, there won\’t be a market for new energy cars."
According to an online survey conducted by Chinese Internet information services portal ifeng.com last week, 68.9 percent of respondents said they will consider buying new energy vehicles and 40.8 percent said that they believed the high price will be the major obstacle to hybrid car development.
China\’s Chang\’an Motor\’s plans to launch its MINI electric car in the second half of 2010, priced at 150,000 yuan.
General Motors has also said it will bring its Chevrolet Volt electric vehicle to China next year and Nissan also said recently that it will introduce its electric car, the LEAF, to China in 2011. Both of the companies have appealed for government support for electric car development in China.

China Resources Q4 net jumps, positive on 2010

admin — Sun, 14 Mar 2010 23:57:43 +0000

China Resources Q4 net jumps, positive on 2010

Consumer-sector focused China Resources Enterprise on Thursday posted a sharp jump in fourth quarter earnings, fueled by growing sales in supermarket and brewery operations, and aims to expand its presence in China\’s retail sector.
The company said it anticipates both the macroeconomic environment and consumer spending on the mainland to extend gains.
"In 2010, the Group\’s operating environment is expected to improve further on the back of a strengthening economy and the central government\’s policy in spurring domestic consumption," chairman Qiao Shibo said in an earnings statement to the Hong Kong Stock Exchange.
"Moving forward as a pure consumer play, we will keep strengthening our three core businesses to improve our profitability while actively extending our presence in the fast-growing China consumer market," Qiao said.
China Resources, owner of the country\’s top beer brand, Snow, saw profit for the December quarter rise to HK$709 million ($91.4 million) from HK$163 million a year earlier, when the global financial crisis hit its retail, food processing and distribution businesses, based on Reuters calculations using company data.
Revenue rose to HK$16.82 billion in the quarter from HK$14.49 billion a year earlier, according to Reuters calculations.
Shares of China Resources Enterprise retreated from an early loss and rose 2.2 percent to HK$28.05 by 0642 GMT.
The company posted a profit of HK$2.91 billion for 2009, up 25.5 percent from HK$2.32 billion in the prior year.
Underlying profit from continuing operations was HK$1.74 billion in 2009, against a restated HK$1.56 billion, and HK$1.79 billion as stated in its 2008 statement.
For the full year, revenue from retail operations rose 12 percent to HK$35.94 billion, accounting for 50.2 percent of the total, while beverage sales were up 17.6 percent to HK$20.47 billion, accounting for 28.6 percent of the total revenue.
Earnings contributed by the food business rose by 12.2 percent to HK$350 million, the company said.
"We will take advantage of our economies of scale and continue to enhance cost and operational efficiency in order to ride on the benefits emerging from the gradual economic recovery," managing director Chen Lang said in a statement.

In December, Beijing-backed China Resources Enterprises, which operates supermarkets, processes meat, and produces its Snow-brand beer with SABMiller Plc, said it would record a HK$3.2 billion gain from the sale of its stake in a 10-year old joint venture with fashion group Esprit for HK$3.88 billion.
In October, the company said it aimed to focus on the rapidly growing consumer market on the mainland through an asset swap with a major shareholder, in a deal valued at nearly HK$5 billion.
The shares were up 25.7 percent in the fourth quarter of 2009, outperforming a 4.4 percent rise in the broader market.

Suning, Samsung target 10 bln yuan in sales

admin — Sun, 14 Mar 2010 23:56:43 +0000

Suning, Samsung target 10 bln yuan in sales
Suning Appliance, a leading home appliance retailer in China, said Sunday it had signed an agreement with the global electronics giant Samsung to target 10-billion-yuan (1.46 billion U.S. dollars) in sales in 2010.
The 10 billion yuan sales target, if achieved, will be a 70 percent increase over 2009 sales, which amounted to 5.88 billion yuan, a press release by the two companies said.
The two companies have cooperated for years. The agreement signed this year would make Samsung one of Suning\’s major partners along with Haier and Midea. It will also make Suning Appliance Samsung\’s second largest strategic partner, according to the press release.
To reach the target, both companies said they will work together to promote sales and explore new markets. Seniors managers of both companies have expressed confidence about reaching the target.

PetroChina plans $60b of overseas expansion

admin — Sun, 14 Mar 2010 23:55:43 +0000

PetroChina plans $60b of overseas expansion

PetroChina Co plans to spend at least $60 billion in the next decade on overseas acquisitions, challenging Exxon Mobil Corp and BP Plc in the race to control oil and gas fields.
"Ten years ago, PetroChina was a State-owned oil company, but now we have a goal of becoming an international, integrated energy company," Jiang Jiemin, chairman of the world\’s largest company by market value, said in a March 25 interview, where he announced the investment plan.
Beijing-based PetroChina spent almost $7 billion in the last year to buy refineries and reserves in Australia, Canada, Singapore and Central Asia. The expansion pits PetroChina against Irving, Texas-based Exxon, which agreed to pay about $30 billion for US gas producer XTO Energy Inc in December.
"Every five, 10 years or so, you\’ll get the occasional $30 billion deal, but this is at least $6 billion every year and that\’s significant for any major oil company," said Neil Beveridge, an analyst at Sanford C. Bernstein Ltd in Hong Kong. "This puts PetroChina on par or exceeding some international oil majors in spending."
Exxon is counting on gas to provide the bulk of its future growth with the acquisition of XTO Energy as well as new developments from the South Pacific to the Celtic Sea. BP, vying with Royal Dutch Shell Plc as Europe\’s biggest oil company, paid at least $8.3 billion to acquire assets over the past 12 months. PetroChina teamed up with Shell last week to buy Australian gas producer Arrow Energy Ltd for $3.2 billion.
Record spending
Spending by Chinese companies on mining and energy acquisitions reached a record $32 billion last year. China Petroleum & Chemical Corp, Asia\’s largest refiner, said?on March 28?it will pay $2.5 billion to purchase a stake in an Angolan oilfield from its parent to boost production.
"A total investment of not less than $60 billion is needed to form our five regions of global oil and gas cooperation, by 2020," Jiang said. PetroChina spent between $2 billion and $3 billion annually in the past five years, so the planned investment "is clearly a step up," Beveridge said.
The shares snapped a five-day losing streak in Hong Kong, rising 1.4 percent to HK$8.87 at 10:06 am local time and outpacing the 0.5 percent gain in the benchmark Hang Seng Index.
"Investors have been encouraged by what the company has had to say about acquisitions overseas," said Shi Yan, an analyst at UOB-Kay Hian Ltd in Shanghai. "They are putting forward a lot of money to buy assets and it also involves a significant increase in the production of oil and gas."
Gas growth
Longer-term investors are betting on PetroChina\’s success, driving the shares up 40 percent in the last 12 months. That beat the 38 percent gain in BP and well outperformed the 3.1 percent decline in Exxon.
The Arrow deal would help PetroChina develop the country\’s coal-bed methane reserves that may be as much as 38 trillion cu m, said Jiang, 54. The Chinese company plans to boost its annual output capacity of the fuel to 4 billion cu m within five years, Jiang said.
That could be 20 percent of China\’s coal-bed methane output by 2015, which may reach 20 billion cu m by then, according to Sun Maoyuan, chairman of China United Coalbed Methane Co, a unit of China National Coal Group Corp, Nov 2.
PetroChina wants half its oil and gas to come from abroad by 2020, Jiang said in Hong Kong. The company, more than 80 percent owned by the state, currently gets less than a tenth of its production from overseas.
Avoid \’Indigestion\’
The energy explorer and refiner plans to produce 400 million metric tons of oil and gas a year by 2020, Jiang said, without stating which countries are favored for investment. Purchases will be largely funded by the company\’s cash flow and earnings, he said.
"We aren\’t going to operate in every oil-producing country," said Jiang, who was elected as chairman in May 2007. "It\’s not the more you eat, the better. You will suffer from indigestion if you eat too much."
Politics is the biggest risk PetroChina faces in its expansion, Jiang said, without elaborating.
Domestic rival Cnooc Ltd dropped an $18.5 billion offer for El Segundo, California-based Unocal Corp in 2005, the biggest overseas acquisition attempted by a Chinese company at the time. The offer met resistance from US lawmakers on grounds the takeover would threaten national security.
\’No Threat\’
Cnooc hadn\’t sought a majority stake in any overseas deal until this year when it agreed to buy half of Argentina\’s second-largest oil producer Bridas Corp for $3.1 billion.
"Tell those who care about PetroChina, PetroChina will never ever be a threat to anybody," said Jiang, previously a vice governor of Qinghai province in China\’s far west.
China wants to triple the use of gas to about 10 percent of energy consumption by 2020 to reduce use of coal. The country plans to import 68 billion cu m of the cleaner-burning fuel a year from Russia through two pipelines, Jiang said. That\’s about 80 percent of China\’s gas production last year.
PetroChina\’s parent, China National Petroleum Corp, has been in talks with Russia on gas imports for more than a decade and has made "good progress" over the past two years with an initial pricing agreement signed at the end of 2009, Jiang said.
The company will focus on its oil and gas business and won\’t invest in renewable energy including wind and solar for now, Jiang said.
China\’s dependency on imported crude will continue to rise, he said. The country\’s annual domestic oil production is unlikely to exceed 200 million tons by 2020 while demand may increase to about 600 million tons by then, Jiang said.
The world\’s second-largest energy consumer relied on imports to meet more than half of its oil needs last year.