Tuesday, November 20, 2007

Its Like The Sopranos Making You An Offer

Beware the friend who keeps patting you in the back, saying "well done, boy" ... cause its more likely he is patting you in order for you to cough up something. BFFs, Temasek and Chinese banks, have elevated their friendship to the next level, a disturbing marriage. Yesterday, the three largest banks in China have separately approached Temasek about buying its 17% stake in Standard Chartered. Officials of Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), and China Construction Bank (CCB) have "sounded out" senior officials at Singapore government's investment agency about buying the stake.

Temasek is the largest single shareholder in London-based StanChart, which makes two- thirds of its profit in Asia. Temasek sources confirmed the approaches but insisted that the agency had rebuffed the advances. StanChart executives are unlikely to welcome a change in its largest shareholder to another lender, as this could trigger fears about its future independence.

StanChart is a brilliant vehicle for big Chinese banks seeking to expand abroad, especially where Chinese banks do not necessarily need to have control. StanChart is very strong in India with 81 branches, plus it has secured Amex Bank (India) for US$860m back in september which will ehance their reach and clout. All up, StanChart will have 90 branches - this is significant because for foreign banks in India there are only a total of 258 bank branches.

I think the 3 Chinese banks approached Temasek, the purpose was not to buy the 17% stake, but to strategise moving ahead should they become minority shareholders of StanChart. Like I said earlier, the Chinese banks do not need control. They'd love to work with Temasek, to learn the ropes about integrating global operations. There is nothing to stop the 3 Chinese banks from collecting minority stakes from the open market.

StanChart top executives headed by Mervyn Davies, chairman, and Peter Sands, chief executive, are however thought to be opposed to Temasek selling its stake to another lender over fears that would compromise Standard Chartered’s independence. We have to remind ourselves that Temasek was the beneficiary of a few sweetheart bank deals a couple of years before the banks were listed. Temasek made tons when these bank stakes were listed. Now time to cough up some blood.

Temasek's Chinese Holdings:

a) Bank of China (5%)

b) China Construction Bank (6%)

c) China Eastern Airlines (8%)

Now, you don't get the OK to buy stakes in the above companies without "proper connections". Time to cough up!

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