Temasek to boost returns in China
By Yoolim Lee (China Daily)
Updated: 2006-09-05 14:21
Temasek Holdings Pte, the largest overseas shareholder
in Chinese banks, plans to add to its more than S$8 billion (US$5.1 billion) of
investments in the country, reducing reliance on its home market of
The state-owned company, which has shares in two of China's four
biggest banks, may buy property and other companies that can benefit from
China's expanding middle class, Frank Tang, head of Temasek's investments in
China, said in an interview.
Temasek, founded in 1974 to nurture the development of Singapore companies,
has in the past four years invested in at least a dozen Chinese companies,
buying 4.65 per cent of Bank of China, the nation's No 2 lender, and 5.9 per
cent of China Construction Bank, the third biggest. Since 2005, it has spent
more than S$7 billion on Chinese lenders, about 90 per cent of its spending in
That includes a 3.9 per cent stake in China Minsheng Banking
Corp, the nation's biggest privately controlled lender.
Temasek isn't alone.
US and European lenders, including Citigroup Inc, Bank of America Corp and HSBC
Holdings Plc, have spent more than US$16 billion in the past two years buying
into local banks.
"There is a good reason why global financial investors
such as Temasek are flocking to buy Chinese banking assets, and given China's
booming economy, high lending margins that are regulated by the State," said
Andy Xie, chief Asia economist with Morgan Stanley in Hong Kong. "Still, the
flipside is their bad loan problem and corruption, which is a rising
Temasek's unrealized gains from its banking investments have
surged as bank shares have risen. It paid US$2.47 billion for a 5.9 per cent
stake in China Construction, which is now worth US$5.7 billion based on the
closing share price on September 1, according to Bloomberg calculations. The
company paid US$2 billion for 4.8 per cent of Bank of China. The stake has since
been diluted to 4.65 per cent and is worth US$4.9 billion.
"Banking is a
good proxy of the economy," said Eric Chen, North Asia president for Asia
Financial Holdings Pte, a Temasek unit invested in banks. "You see the rise in
the middle class and that means their wallets are going to grow. So, in 15
years, our investments are going to be worth a lot of money."
China last week reported first-half profit rose 28 per cent to a record 19.5
billion yuan (US$2.5 billion), buoyed by rising demand for loans
focus now is to make sure these two banks do well because if we build a good
reputation in China, we will get invited to more deals," Chen said. "Ten years
from now, China's financial service industry is going to be so different from
what it is today. You just have to keep your eyes open."
month paid US$50 million for a 9.9 per cent stake in Xinyu Hengdeli Holdings
Ltd, China's largest watch retailer. It has shares in Dongfeng Motor Group Co,
which makes engines and light trucks, regional cargo carrier Great Wall Airlines
Co, jet fuel supplier China Aviation Oil (Singapore) Corp and China Power
International Development Ltd, the nation's fifth-largest electricity
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