Tue, 09th February 2016

Anirudh Sethi Report


Archives of “china” Tag

ChemChina Set To Buy Swiss Syngenta For $43 Billion-In Biggest Ever Chinese Corporate

ChemChina is nearing a deal to buy agribusiness group Syngenta for around $44bn in what would be China’s biggest-ever outbound acquisition, according to people close to the deal.

The companies are on the cusp of announcing a deal in which ChemChina would pay around SFr470 per share for the Swiss pesticide and seed maker

The exact structure of a deal remains unclear, but a deal could be revealed as soon as Wednesday when Syngenta reports its result, these people said.

Friday is the last working day before much of East Asia is swept up in lunar New Year’s celebrations that will close mainland markets for a week. While the companies are pushing to finish before then, a person familiar with the deal said the size and complexity of the transaction could stand in the way of completion.

China National Chemical Corp, the company’s full name, has made several high-profile cross-border buyouts over the past decade. Led by its chairman Ren Jianxin, ChemChina bought Italian tyre maker Pirelli for $7.9bn last year, giving the Chinese state-owned firm a significant presence in the global tyre industry, in which it had little experience prior to the deal.

In January, ChemChina agreed to pay $1bn for Krauss Maffee, the German machinery company, and also bought a 12 per cent stake in Mercuria, valuing the Swiss energy trader at more than $3bn.

The Syngenta buyout would make ChemChina a dominant player in the $100bn-a-year agribusiness industry. Syngenta did not immediately respond to a request for comment.

A Chinese Banker Explains Why There Is No Way Out

Over the past year, we have frequently warned that the biggest financial risk (if not social, which in the form of soaring worker unrest is a far greater threat to Chinese civilization) threatening China, is its runaway non-performing loans, which at anywhere between 10 and 20% of total bank assets, mean that China is one chaotic default away from collapsing into the post “Minsky Moment” singlarity where it can no longer rollover its bad debt, leading to a debt supernova and full financial collapse. And as China’s total leverage keeps rising, and according to at least one estimate is now a gargantuan 350% of GDP (incidentally the same as the US), the threat of a rollover “glitch” gets exponentially greater.

To be sure, in recent months the topic of China’s bad debt has gained increasingly more prominence among the mainstream, and notably none other than Kyle Bass has made the bursting of China’s credit cycle the basis for his short Yuan trade as noted here previously:

 What I think the narrative will swing to by the end of this year if not sooner, is the real issue in China is not simply that profits have peaked. The real issue is the size of their banking system. Do you remember the reason the European countries ended up falling like dominoes during the European crisis was their banking systems became many multiples of their GDP and therefore many, many multiples of their central government revenue. In China, in dollar terms their banking system is almost $35 trillion against a GDP of $10 and their banking system has grown 400% in 8 years with non-performing loans being nonexistent. So what we are going to see next is a credit cycle, and in a credit cycle you see some losses, but if China’s banking system loses 10%, you are going to see them lose $3.5 trillion.

China Says Soros “Hasn’t Done His Homework,” May Be “Partially Blind”

From Xinhua

China has ample reasons to stay confident in face of speculators. Far from some speculators’ claims, China is not a source of trouble but an important engine of global economic growth with its growing demand and investment.

Here are the numbers. China registered a growth rate of 6.9 percent last year amid a sluggish global economy, contributing more than 25 percent of global economic growth.

Chinese tourists spent 1.2 trillion yuan (182.4 billion U.S. dollars) overseas, while the country’s investors pumped 735 billion yuan (111.7 billion dollars) into other economies.

Speculators claimed they see a hard landing for China. It is true that the growth of the world’s second largest economy is experiencing a relative slowdown compared with the blistering growth of the past decade. But as we know, decision makers have now opted for a slower pace in order to make the country’s growth more sustainable in the future.

Moreover, a growth rate of 6.9 percent is the envy of most other economies. China’s added economic output last year was more than the GDP of Sweden or Argentina.

Moody’s: Chinese banks face higher risks and loan delinquencies- Full Text

Moody’s Investors Service says that banks in China (Aa3 stable) will face a higher degree of uncertainty — and therefore risk — amid increased volatility in interest rates, exchange rates, stock prices and fund flows.

“We also anticipate further increases in loan delinquencies, more defaults on corporate debt and some losses in wealth-management products, as more borrowers struggle to meet payments against the backdrop of high financial leverage and a downturn in their respective sectors,” says Christine Kuo, a Moody’s Senior Vice President.

“While the Chinese authorities will implement measures to mitigate financial market volatility and corporate default, the effectiveness of such measures will vary, because of the challenges of managing China’s large and complicated market,” adds Kuo.

Moody’s analysis is contained in its just-released report titled “Banks — China: Frequently Asked Questions about Chinese Banks amid Recent Volatility,” and is authored by Kuo.

Moody’s report says that the financial performance of Chinese banks over the next two years will be driven primarily by the evolution of their asset quality, which is in turn a reflection of their risk appetites.

China – Xinhua warns yuan sellers , you’re going to “suffer huge losses”

A weekend a commentary from the official Xinhua News Agency

When I say “official”, the newspaper is a mouthpiece for policy announcement from China’s central government, so yeah, it really is official.

Anyway … watch out those entering short positions in the yuan.

You are expected to “suffer huge losses” says the piece in Xinhua, going on to say policy makers will take more measures to stabilize the exchange rate.

via Bloomberg


IMF’s Christine Lagarde says markets need clarity on China currency

Financial markets need more clarity on how the Chinese authorities are managing their currency, particularly the relationship of the yuan to the U.S. dollar, IMF Managing Director Christine Lagarde said on Saturday.

Asked at a panel discussion in Davos whether she would back capital controls by China for a period, she avoided a direct reply but said: “Certainly a massive use of reserves would not be a particularly good idea … Some of it was already used.”

She said that the market needed “clarity and certainty” about China’s exchange rate basket “in particular with reference to the dollar, which has always been the reference”.

“That would be the right move to make,” she added.

Bank of Japan governor Haruhiko Kuroda said his personal view was that capital controls would be an appropriate way for China to reconcile its need to keep domestic monetary policy loose while stabilising its currency.

PBOC biggest OMO cash injection for 3 years – indicates delay in RRR cut?

PBOC money market activity today was huge

  • Injects 290 bn yuan through 28 day reverse repos
  • Injects 110 bn yuan through 7-day reverse repos

Bloomberg follows up (bolding mine):

“The market is a bit nervous and liquidity is also needed to cover the Chinese New Year,” said Frances Cheung, Hong Kong-based head of rates strategy for Asia ex-Japan at Societe Generale SA. “The fact that they are going for longer tenors on reverse repos and its MLF does add to market expectations for a delay in a reserve-ratio cut, which in itself could be linked to the currency market performance.”

Mexico Oil Price Drops Below Production Cost

The state-run Pemex oil company is losing 93 cents for each barrel sold, as it costs $23 to produce, the Financiero news portal said Monday.

In December, Mexican authorities announced that Mexico oil revenues decreased by 38 percent in the last 10 months compared to the same period in 2014.

The sharp decline in the country’s state revenue is due primarily to a drop in international oil prices, an 8 percent decrease in oil production, and a 34 percent drop in gas prices.

Recent turbulence in the Chinese stock market has caused a knock-on effect across the world. China’s trade suspension last week was followed by Wall Street sliding one percent and European stock markets slumping by two percent.

China Dec vehicle sales +15.4% vs +20.0% prev

Chinese data just out from the industry assocation

  • 2015 full year sales yy+4.7% vs +6.9% in 2014
  • total 2015 vehicle sales 24.6m units

Softer data but unsurprising given the biggest economic slowdown in 25 years

Shanghai Comp Index falls back into negative territory, -0.2% at 3016.89

Latest OECD monthly indicators suggest stabilisation of Chinese economy

You’d never know it given the market moves

The latest OECD leading indicators suggest that all is not lost in China and that Europe has a “stable momentum”

Highlights from the Nov index;

  • OECD area 99.8 unch
  • Eurozone 100.6 unch
  • China 98.4 vs 98.3 prior
  • US 99.1 vs 99.2 prior
  • UK 99.1 vs 99.3 prior
  • Germany 99.9 unch

The index is supposed to signal trend changes if they move above or below the 100 mark