Rick Carew has an interesting comment in his Wall Street Journal piece today. In commenting on the $5 billion investment by the CIC into a Morgan Stanley mandatorily convertible bond, he says:
For the first time, Chinese companies and the government bought more overseas than foreign buyers have invested in China. Chinese buyers have spent $29.2 billion acquiring foreign companies so far this year, while investors from the rest of the world have bought $21.5 billion of Chinese companies, according to Thomson Financial.
Of course total FDI into China was greater – around $60-65 billion expected for this year, but Chinese acquisitions abroad, while still small compared to the size of inflows, seems to be rising.One small caveat about Rick’s article, he says “The terms of the Morgan Stanley deal guarantee CIC a 9% annual return, well above the fund's 5% cost of funding, until it converts its investment to shares in 2010.”Actually it is only above the CIC’s funding cost if the RMB appreciates at less than 3.8% a year.Otherwise the CIC will run a negative carry on the deal, which will only be reversed if the bond trades up sufficiently and the CIC sells.
From http://blogs.wsj.com/deals/2007/12/19/morgan-stanley-made-in-china/, it is said that "CIC has an agreement with the Finance Ministry to protect CIC from foreign-exchange fluctuations". I wonder what the agreement is.
By fatbrick - 12/20/2007 12:50 AM
Ver interesting. That makes it easier for the CIC to be profitable. It also makes sense from the point of view of evaluating the CIC's success as an investor, because I think that fx losses belong to the PBoC, who would have incurred them with or without the creation of the CIC.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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Comments (2) for "China buys more of Wall Street"
January, 2008
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