China Has $1.2 Trillion Of Foreign Exchange Reserv
Aug 24, 2007 by Michael Redbourn
The Chinese and Singaporean governments have become key investors in Barclays which in turn is helping the U.K. firm to raise its offer for the Dutch bank ABN Amro.
Barclays says that it will now offer to pay 67.5bn euros (£45.4bn) in cash and shares for the Dutch bank.
The China Development Bank (CDB) and Temasek which is the investment arm of the Singaporean government have invested £2.4bn (3.6bn euros) in Barclays and are set to invest a further £6.5bn if the ABN takeover goes through and Barclays shares climbed 2% higher on Monday after details of the deal emerged.
Barclays is hoping that its new relationship with the CDB will yield it hundreds of millions of pounds in extra profits from doing new business in the Chinese economy.
In the event that Barclays acquires ABN then the Chinese state would emerge with a shareholding of 7.7% in the enlarged group but it has pledged not to raise its stake to more than 9.9% of the group over the next three years.
A smaller stake of about 3% would be taken by Temasek which is owned by the Singaporean government and Temasek insists that all its investment decisions are made independently. The chief executive of Temasek is however the wife of Singapore's prime minister and has about $80bn under management.
Although CDB is state owned it is seen by many analysts as one of the country's most commercial institutions and finances many industries including petrochemicals and the railways.
Barclays’s chief executive John Varley says that he is "entirely comfortable" with the involvement of the Chinese in the business.
"This is the biggest external investment that they ever made and they chose Barclays so there should be a significant and positive reaction in global markets” he said.
The Asian deals were arranged by “Blackstone” which is a leading U.S. private equity house that recently sold a £1.5bn stake in itself to the Chinese state.
The Chinese state presently has $1.2 trillion of foreign exchange reserves to invest much of which has been placed in U.S. Treasuries and government bonds.
China recently signalled however that it would be taking a much more imaginative and aggressive approach as to how it invests its money and hinted at the buying of significant holdings in overseas companies.