BEIJING, Feb 1 (AFP)
Foreign investors are retreating from China in the wake of a high-profile bankruptcy, and have cut potential credit lines worth 100 million dollars to the investment arm of Fujian province, reports said Monday. Fujian International Trust and Investment Corporation (FITIC) has been forced to renegotiate payment schedules on three international bank debts after lenders withdrew loan quotas, vice chairman Xin Shimin told the London-based Financial Times.
�This has caused a relatively difficult liquidity situation,� he said.
Government liquidators announced the bankruptcy of Guangdong International Trust and Investment Corporation (GITIC) on January 10 � the first bankruptcy of a financial institution in China since the founding of the People�s Republic in 1949.
The provincial government-backed investment agency had debts of 36.145 billion yuan (4.355 billion dollars) as of January 6.
The terms of the bankruptcy provided for payment to some 25,000 individual Chinese creditors, but failed to give international creditors any assurances they would be repaid.
Foreign lenders have thought �the closure of GITIC was the beginning of a Chinese financial crisis ... they thought all the ITICs would be closed,� Xin said. �GITIC was a special case. We are a normal case ... FITIC will definitely not be closed,� he added.
But Germany�s Commerzbank AG board member Juergen Lemmer said in a recent interview with the Frankfurter Allgemeine Zeitung that the bank was withdrawing all matured loans from China and had not yet decided whether it will make any new loans. �I don�t know whether the Chinese fully thought through the signal effect abandoning GITIC would have on foreign investors and lenders,� he said.
�No bank will give money to a Chinese borrower at the moment, especially one with a government background,� he added.
Many of China�s 240-odd ITICs have piled up unmanageable debts due to poor management and the influence of local officials who steered their investment decisions along political lines � often into doomed real-estate projects. People�s Bank of China Governor Dai Xianglong recently put the foreign debt of ITICs at around 8.1 billion dollars, although other estimates are around 15 billion dollars, and pledged to restructure the sector.
But Zhu Yuening, chairman of the Hong Kong Chinese Enterprises Association, said the government�s decision to close down GITIC was positive as it could no longer be responsible for such debts.
State-backed Chinese firms listed or operating in Hong Kong remain financially sound, with their assets still outweighing their debts, Zhu told the semi-official China News Service.
He said Chinese businesses with a presence here were �healthy,� with overall assets estimated at 1,600 billion Hong Kong dollars (206.7 billion US) last year.
by Michele Folian
PARIS, Feb 1 (AFP)
Societe Generale has launched an offer for shares in Paribas costing about 15 billion euros (17 billion dollars) and marking a major development in the birth pains of restructuring of French and euro-zone banking.
If the two banks merge, under the name of SG Paribas, they will aim for growth of 15 percent and will displace Credit Agricole as the biggest French banking group.
The merger would create the fourth-biggest bank in the world in terms of shareholders� funds, and sets the stage for expected restructuring of the French banking sector.
Analysts calculated the cost of the deal at about 15.1 billion euros. Trading in stock in the two banks was suspended.
French Finance Minister Dominique Strauss-Kahn welcome the development of �a strong and dynamic French financial sector at the heart of the euro�. The French state has long had a heavy influence on French banking.
Restructuring, which is likely to involve job cuts, coupled with reform of regulations affecting such sensitive matters as working hours and other conditions of employment, is seen as highly controversial here.
Many analysts have long argued that France has too many banks which are not sufficiently profitable and note that restructuring of the banks would have big implications for cross-shareholdings on the stock market, and for relationships in industry.
SG Paribas would be the fifth-biggest French bank in terms of capitalisation, being capitalised at 30 billion euros, and would be the second-biggest French financial group after the insurance group Axa which bid for the British insurance group GRE on Monday.
The head of Paribas, Andre Levy-Lang, would chair the new group and the president of Societe Generale, Daniel Bouton, would become vice president but would succeed to the presidency in 2002.
Paribas had been thought likely to link with Credit Lyonnais, the state-owned bank which has been rescued at vast cost to the taxpayer and which is due to be privatised in the spring on the insistence of the EU Commission.
Axa is the biggest shareholder in Paribas, owning 7.5 percent of the equity. But Axa will now find itself the second-biggest shareholder behind its main competitor, Allianz, which has holdings in each of the banks through its French branch AGF.
Societe Generale and the BNP bank, like Paribas, wanted to acquire stakes in Credit Lyonnais, but the president of Credit Lyonnais, Jean Peyrelevade, has made clear that he opposes such moves.
One banker commented that the creation of SG Paribas would probably end prospects that Paribas might acquire a significant holding in Credit Lyonnais but that it did not open the way for BNP, which might now seek links with European banks.
The price of shares in BNP surged by nine percent to 87.20 euros in early trading here on Monday, as part of a strong rise by bank shares which pushed the CAC 40 index to close to a record of 4,4034.94 points reached on July 20.
Societe Generale has offered to buy all Paribas shares on the basis of eight Paribas shares for five Societe Generale shares, but involving an issue of about 96 million shares in Societe Generale if the offer is fully accepted, taking the total of shares in the bank to 196 million.
The offer is conditional on acceptance on behalf of at least 50.01 percent of stock in Paribas.
The new group would have net profits on the basis of recent results, of 2.1 billion euros, comprising 1.1 billion euros from Societe Generale and 1.0 billion euros from Paribas, and would have shareholders� funds of nearly 21 billion euros.
The two banks said in a statement: �The objective is to achieve recurrent profitability on shareholders� funds of 15 percent and growth of net profits per share of more than 15 percent per year on average.� Restructuring would cost about one billion euros.
The group would have six main areas of business: retail banking through Societe Generale and Credit du Nord, specialist financial serices, banking services and asset management, shareholdings, and property.
Societe Generale was nationalised in 1945 and Paribas was nationalised at the beginning of the 1980s, with both privatized in 1986-87.
Societe Generale had broken ranks with the French establishment by challenging the rescue of Credit Lyonnais with an appeal to the EU court in Luxembourg.
by Kofi A. Annan
In the two years since I became Secretary-General of the United Nations, our relationship with the private sector has taken great strides forward. We have shown through cooperative ventures - both at the policy level and on the ground - that the goals of the UN and those of the world business community can be mutually supportive.
Now, I want to challenge the leaders of that community to go a step farther. I am asking them to join me in a global compact of shared values and principles, which can give a human face to the global market.
Globalization is a fact of life. But ...