SAFE seen behind purchase of GBP1b stake in British oil giant BP

PUBLISHED : Wednesday, 16 April, 2008, 12:00am
UPDATED : Wednesday, 16 April, 2008, 12:00am

In an apparent move to boost returns on China's huge foreign currency reserves, a mainland entity believed to be the investment arm of the State Administration of Foreign Exchange (SAFE) has accumulated a stake worth almost GBP1 billion (HK$15.34 billion) in British oil giant BP.

Made less than two weeks after it emerged that SAFE had built up a 1.6 per cent stake of about Euro1.8 billion (HK$22.22 billion) in French oil group Total, the latest purchase is likely to revive international criticism about the opacity of the mainland's investments in foreign companies.

'We are aware that a Chinese entity owns just under 1 per cent of BP, built up over some months, but we cannot confirm what that entity is,' BP spokesman David Nicholas said yesterday.

A source close to BP said the transactions had been made by a mainland state bank for an unnamed client that was almost certainly SAFE's investment arm. 'All the indications are that the client is the same entity that bought shares in Total,' he said.

BP is Britain's largest firm with a capitalisation of GBP104 billion, valuating SAFE's stake at almost GBP1 billion.

Britain remained open to investments by Chinese state funds, British Finance Minister Alistair Darling said during a visit to Beijing yesterday. 'Our belief in open markets and free trade is reflected in the UK's openness to inward investment, including from sovereign wealth funds,' he said. 'And we welcome the creation of the Chinese sovereign wealth fund and its potential for investing in our country.'

Spokesmen at SAFE were unavailable for comment yesterday.

The regulator's latest investment is a further sign the manager of the country's vast foreign currency reserves of US$1.68 trillion is competing head on with the recently launched state investment fund to preserve and enhance asset value.

Beijing launched China Investment Corp (CIC) last year with a mandate to invest the country's foreign reserves more aggressively in foreign equities, while SAFE was expected to stick to ploughing cash into safe but low-yielding US treasury bills. But SAFE appears to have responded by diversifying its own strategy to include equity investments, leading some analysts to conclude that it is competing with CIC.

Safe Investment, a Hong Kong-registered unit of SAFE, bought stakes totalling A$1.2 billion (HK$8.65 billion) in three of Australia's biggest banks earlier this year.

'It is very clear now that China has two competing sovereign wealth funds,' said Arthur Kroeber, a director of consultancy Dragonomics.

SAFE's latest moves are unlikely to be welcomed by CIC, which has been trying to convince foreign sceptics that it is not simply an investment arm of the central government.

'CIC has been making a clear effort to persuade the world it is a commercial entity. But when people see money coming in from other government sources, they're going to find it hard to believe,' said Fraser Howie, a co-author of Privatising China.

Changing tack

SAFE is diversifying its own strategy to include equity investments

The agency has built up a 1.6 per cent stake in France's Total worth about: Euro1.8b

China's world

Mainland quest for overseas oil and mineral assets


April The State Administration of Foreign Exchange (SAFE) is reported to have accumulated a stake of just less than 1 per cent in BP, Britain?s largest company, for US$2 billion

Earlier in the month SAFE was reported to have amassed a 1.6 per cent stake, worth US$3.2 billion, in French oil giant Total

February State-owned Aluminum Corp of China (Chinalco) teams up with US aluminium giant Alcoa to buy 12 per cent of Anglo-Australian miner Rio Tinto for US$14.05 billion. It is China?s biggest investment overseas

March Iron ore trader Sinosteel Corp makes a hostile US$882 million all-cash offer for Australian ore prospector Midwest Corp


September China National Petroleum Corp?s US$2 billion bid for US-based Devon Energy Corp?s West African oil and gas assets is scuppered by valuation disagreements

June Aluminum Corp of China (Chalco) buys Vancouver-based copper miner Peru Copper for US$800 million


December Citic Group buys the Kazakhstan oil assets of Canada?s Nations Energy for US$1.91 billion

January China National Offshore Oil Corp (CNOOC) pays US$2.27 billion for 40 per cent of a South African Petroleum oil field off the Nigerian coast


August CNOOC withdraws its ill-fated US$18.5 billion bid for US oil company Unocal Corp following a political storm in Washington