News Roundup (6 February 2008): Temasek/Tui deal; No SWF for India?; Japan looking to thwart China; Saudis to be modest
Posted by AJ on February 6, 2008
Slow news week and I’m swamped at work so not much news analysis this week. I’m working on a few substantive pieces that I hope to get up as soon as things calm down, possibly this weekend.
Temasek merger with Tui
Germany doesn’t seem to have the same issues that the US does with allowing foreign entities to own transportation infrastructure (Financial Times):
Temasek, the sovereign wealth fund, and Germany’s Tui are in talks to merge their shipping operations in a deal that could see the Singaporean group take a stake of more than 20% in the Hanover-based travel group.
India not in a good position to start SWF
Echoing some of my own thoughts on the possibility of an Indian SWF (LiveMint):
Unlike established SWF rivals, India’s reserves are not a result of high commodity prices or excess savings. The country runs a current account deficit of 2% of gross domestic product (GDP). It needs to keep a fair amount of cash on hand just to ensure that trade keeps flowing.
More important, India is still very poor and crying out for investments. Investment accounts for 33% of GDP in India, far below China’s 43%.
The government recognizes the problem. Its latest Five-year Plan includes $492 billion of infrastructure spending, but it expects the private sector to come up with two-thirds of the cash. It would make sense to use any extra unneeded foreign currency to increase the government’s share.
In the long term, the returns on even modestly well thought out domestic investments will surpass those earned by a sovereign wealth fund.
Saudi reconsidering plans for SWF
Much larger country than the other commodity-based SWFs, much more political unrest, couple that with the Western backlash to SWFs, the risks of having a SWF seem to outweigh the rewards for Saudi. Especially, when they can at any point ‘appropriate’ a larger portion of any excess reserves to members of the royal family (Business Week):
Don’t expect Saudi Arabia to be a big player in the Sovereign Wealth Fund space. That was the message from a senior Saudi financial official I encountered recently. He said Saudi Arabia was considering a modest fund of around $6 billion.
Japan wants global SWF ‘rule book’ for protection from China
China Development Bank is attempting to ‘dominate and control’ the Japanese steel industry. Any global rules or regulations on SWFs are likely to be voluntary so I don’t think Japan would get much protection from those. It will be interesting to see how this plays out (Times Online):
“We need governments everywhere to come together to make rules that would prevent the disorder caused by these funds,” Hajime Bada, president of the Japan Iron and Steel Federation said. “Some countries are using their state funds to dominate certain industries.”
Japanese steelmakers see the impending bidding war for Rio as a crisis in the making, with potentially devastating iron ore pricing power going to BHP Billiton or, worse, to an aggressive Chinese player with the financial backing of the State. Caught between what it sees as “two worst-case scenarios”, the Japanese steel industry is pinning its hopes on government intervention.
