China Helps Barclays Chase ABN

By Glenn Dyer | More Articles by Glenn Dyer

China is flexing its financial muscles in western deals.

A month after picking up a 9.9% stake in the float of the Blackstone private equity group in the US, a Chinese bank has agreed to help fund the cash component in the Barclays bid for Dutch banking giant, ABN Amro.

Along with China, Barclays has also sought help from the key Singapore Government investment company, Temasek, which controls groups like Singapore Telecom (Optus), Singapore Airlines and has other strategic investments throughout Australia and Asia.

The involvement of China and Singapore backing was revealed by Barclays when it raised its offer to 67.5 billion euros ($US93.4 billion, or about $A104 billion).

Barclays' new, higher bid is worth 35.73 euros a share, 37 per cent of it is cash, 4.3 per cent more than its previous offer.

But the new offer is still lower than the 38.40 euro-a-share offer made last week by a trio of banks led by Royal Bank of Scotland Group Plc. Barclays hopes that the market will push up the value of its shares, making its bid worth more over the next two months.

Advised by Blackstone, China Development Bank will invest 2.2 billion euros in Barclays, and a further 7.6 billion euros if the bid for ABN Amro succeeds.

Singapore's Temasek Holdings, the Government's investment arm, will invest 1.4 billion euros initially, and an additional 2.2 billion euros if the ABN Amro purchase is completed by Barclays.

A merger of ABN Amro and Barclays would be the biggest-ever financial services deal, creating a bank with a market value of more than $US160 billion (more than $A177 billion). The Royal Bank-led group's offer, which will end on October 5, contains a much higher cash content, around 93 per cent cash.

The Royal Bank offer is a European bid: its partners are Banco Santander SA of Spain and Fortis of Belgium.

Temasek already has investments in mainland China banks including stakes in Bank of China and China Construction Bank.

China Development Bank is one of the China's so-called "policy banks,'' which support the government's development and political agenda by lending for public works and to targeted industries. It is now the world's biggest bank by market capitalisation, just pipping Citigroup.

The government is planning to reorganize all three into commercial, profit-oriented banks.

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Therefore,theinvolvement in this deal would not have been without official Chinese Government blessing, a significant change in strategy.

With the benefit of the share issue, Barclays has recast its bid for ABN Amro from an all-share offer to a cash-and-share deal.

Initially, China Development Bank and Temasek are buying 3.6 billion euros worth of Barclays shares. So if the bid for ABN Amro lapses, Barclays will use this cash to buy back shares.

Barclays also reported half-year profits up 12 per cent to 4.1 billion pounds before tax.


So how has China's multi-billion dollar investment in Blackstone gone since the float around a month ago?

Shares of Blackstone finished at $US26 late last week, down 16% from their $US31 offering price, and down even more from the post-float high of more than $US38 a share.

The Chinese government is under water on its $US3 billion dollar investment in the Blackstone Group.

There's the problem over high yield deals, including the finding of private equity buyouts, of which Blackstone is one of the leaders.

One such deal involves the Freescale Semiconductor.

Late last week it reported a poor result. Sales were down 14% from the year-earlier quarter, primarily because of weakness at Freescale's largest customer, Motorola (which is losing money). Operating earnings were lower.

Blackstone and partners bought Freescale last December after beating out a group led by KKR in a bidding war.

The question now is; is Freescale worth less today than what Blackstone and its partners paid for it eight months ago? Motorola's shares are off 18% since Blackstone bought Freescale as it has plunged into steep losses.

A guide for China's move into the big time and a huge bank takeover?

It could be.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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