In 2009, for example, the China Development Bank (CDB) agreed to lend CNPC $30 billion over a five-year period to support its efforts to acquire assets abroad. Similarly, CBD has loaned $10 billion to Petrobras, Brazil’s state-controlled oil company, to develop deep offshore fields in return for a promise to supply China with up to 160,000 barrels of Brazilian crude per day.
Prodded in this fashion and backed with endless streams of cash, CNPC and the other giant Chinese firms have gone on a global binge, acquiring resource assets of every imaginable type in staggering profusion in Central Asia, Africa, the Middle East, and Latin America. A very partial list of some of the more important recent deals would include:
* In April 2009, CNPC formed a joint venture with Kazmunaigas, the state oil company of the energy-rich Central Asian state of Kazakhistan, to purchase a Kazakh energy firm, JSC Mangistaumunaigas (MMG), for $3.3 billion. This was just the latest of a series of deals giving China control over about 1/4 of Kazakhstan’s growing oil output. A $5 billion loan-for-oil offer from China’s Export-Import Bank made this latest deal possible.
* In October 2009, a consortium led by CNPC and the oil heavyweight BP won a contract to develop the Rumaila oil field in Iraq, potentially one of the world’s biggest oil reservoirs in a country with the third largest reserves on the planet. Under this agreement, the consortium will invest $15 billion to boost Rumaila’s daily yield from 1.1 to 2.8 million barrels, doubling Iraq’s net output. CNPC holds a 37% share in the consortium; BP, 38%; and the Iraqi government, the remaining 25%. If the consortium succeeds, China will have access to one of the world’s most-promising future sources of petroleum and a base for further participation in Iraq’s underdeveloped oil industry.
* In November 2009, Sinopec teamed with Ecuador’s state-owned Petroecuador in a 40:60 joint venture (with Petroecuador holding the larger share) to develop two oil fields in Ecuador’s eastern Pastaza Province. Sinopec is already a major producer in Ecuador, having joined with CNPC to acquire the Ecuadorian energy assets of Canada’s EnCana Corp. in 2005 for $1.4 billion.
* In December 2009, CNPC acquired a share of the Boyaca 3 oil block in the Orinoco Belt, a large deposit of extra-heavy oil in eastern Venezuela. In that month, CNOOC formed a joint venture with the state-owned company Petróleos de Venezuela S.A. to develop the Junin 8 block in the same region. These moves are seen as part of a strategic effort by Venezuelan President Hugo Chávez to increase his country’s oil exports to China and reduce its reliance on sales to the U.S. market.
* That same December, CNPC signed an agreement with the government of Myanmar (Burma) to build and operate an oil pipeline that will run from Maday Island in the western part of that country to Ruili, in the southwestern Chinese province of Yunnan. The 460-mile pipeline will permit China-bound tankers from Africa and the Middle East to unload their cargo in Myanmar on the Indian Ocean, thereby avoiding the long voyage to China’s eastern coast via the Strait of Malacca and the South China Sea, areas significantly dominated by the U.S. Navy.
* In March 2010, CNOOC International announced plans to buy 50% of Bridas Corp., a private Argentinean energy firm with oil and gas operations in Argentina, Bolivia, and Chile. CNOOC will pay $3.1 billion for its share of Bridas, which is owned by the family of Argentinean magnate Carlos Bulgheroni.
* In March, PetroChina joined oil major Shell to acquire Arrow Energy, a major Australian supplier of natural gas derived from coal-bed methane. The two companies are paying about $1.6 billion each and will form a 50:50 joint venture to operate Arrow’s holdings.
And that’s only in the energy field. Chinese mining and metals firms have been scouring the world for promising reserves of iron, copper, bauxite, and other key industrial minerals. In March, for example, Aluminum Corp. of China, or Chinalco, acquired a 44.65% stake in the Simandou iron-ore project in the African country of Guinea. Chinalco will pay Anglo-Australian mining giant Rio Tinto Ltd. $1.35 billion for this share. Keep in mind that Chinalco already owns a 9.3% stake in Rio Tinto, and has been prevented from acquiring a larger share mainly thanks to Australian fears that China is absorbing too much of the country’s energy and minerals industries.
Now China has shifted to Australia in recent months. The value of takeovers this year has topped $33 billion as Australian companies stray into the cross-hairs of energy hungry Chinese buyers or cashed-up businesses that survived the global financial crisis and are now eager for growth.US companies have also made a return to the local market. Staples is trying to mop up Corporate Express and Peabody Energy has launched a $3.3 billion bid for Macarthur Coal of Queensland.
The bustling deal activity is likely to shower Australian shareholders with billions of dollars in cash this year, improving the returns of superannuation and managed funds and boosting capital gains tax receipts for the government.
Figures show Australia remains one of the most popular destinations for merger and acquisition activity in the Asia-Pacific region. Australia was the biggest hub for mergers and acquisitions last year in dollar terms and second to Hong Kong for the first three months this year.
Australia's leading position in energy and resources has helped fuel most takeover activity. Four of the top five takeover targets are involved in energy, coal or base metals, and there are a string of smaller deals below $500 million that involve miners.
But it is the resources binge, led by Chinese companies, that has helped Australia eclipse takeover activity in the region in terms of deal values. According to Bloomberg data 181 deals (mergers, acquisitions, divestitures and spin-offs) worth a total of $US28.3 billion were recorded between January and last month, against only $US15.58 billion in Britain, $US20.8 billion in Japan and $US27.99 in China.
Last year, in the largest Australian acquisition by China, Yanzhou Coal Mining Co., China's fourth-biggest coal producer, agreed to buy Australia's Felix Resources Ltd. for about A$3.5 billion to secure supplies. Yanzhou paid A$18/share for Felix, including a dividend and stock in a unit, according to a statement from the Brisbane-based company. That represents a premium of 6.5 percent to the last traded price of Felix shares, which have increased by 92 percent this year in anticipation of the deal.
The acquisition is China's biggest in Australia since Rio Tinto Group backed out of a $19.5-bilI ion investment from state-owned Aluminum Corp. of China in June.Metallurgical Corporation of China Ltd. announced in February that it would buy into Australia's Resource House for USD 200 million, and after transactions are over, the Chinese company will hold less than 5 percent of the Australian miner.
China Sci-Tech (CST) announced last month it was also moving to acquire the Canadian listed company Chariot Resources Ltd for $Hk1.8 billion ($US231.9 million). Chariot owns 70% of the Marcona copper property which has the Mina Justa project in southern Peru.
Chinese corporate leaders have been advised to ''race against time'' to secure more overseas resources, potentially accelerating the investment rush into resource-rich countries like Australia. A report commissioned by China's State Council, or cabinet, advises that Beijing clarify the strategic rationale and increase guidance and practical support for companies investing abroad, following the demise of Chinalco's $US19.5 billion investment deal with Rio Tinto last June.
''The fundamental purpose of overseas resource investment is to create relatively secure supply systems for China's resources supply,'' says the report, How Should China Improve Its Overseas Resource Investments: Reflections on the Chinalco-Rio Tinto Deals.
''With the recovery of the world economy, the opportunities are becoming less, so we should race against time.''
Last year China jumped to become Australia's second-largest source of foreign direct investment, from negligible levels three years ago. And Australia was China's single largest outward investment destination.
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