Highlights from the last week of China business news: Cathay’s attempt to block SIA’s deal with China Eastern gets blocked by the big boys in Beijing; Foreign investment banks are finally allowed to buy stakes in local securities firms.
Beijing shows its hand in the China Eastern aviation deal
Singaporeans can breathe easy this week. A deal by Singapore Airlines, a corporate crown jewel of the island-state, survived a last-ditch attack by Hong Kong rival Cathay Pacific. SIA was on course to buy a 15.7% stake in Shanghai’s China Eastern Airlines, along with a 8.3% simultaneous investment by Singapore state investment fund Temasek, SIA’s majority shareholder. The deal would have been worth US$923 million. All was going to plan until Cathay’s stocks were suspended from trading last Friday, with the only explanation being that it would be making an announcement soon. Sure enough, stories surfaced that Cathay was mounting a bid with affiliate Air China to block the Singaporeans’ deal at the last minute. Aviation watchers waited for three tense days for Cathay to announce its bid – but it never came. On Monday, Cathay said it would not be bidding for China Eastern, without elaboration. An explanation emerged: the State Council had flexed its muscle, denying approval of Cathay’s bid. SIA must cross a final hurdle – shareholder approval – before its bid becomes reality, but pundits say the coast is clear for now. China Eastern’s stock price, meanwhile, took a beating, dropping nearly 15% to HK$7.42 yesterday.
Investment bankers, rejoice
The suits on Wall Street and in the City must have had a few extra drinks on their (fat) expense accounts after China announced that foreign investment banks would finally be allowed to buy stakes in local securities firms. Foreign I-banks will be able to buy up to a third of a local firm by year’s end. Meanwhile, the usual cooling measures are in place for the A-share markets. The regulator has suspended approvals of new funds to encourage more Chinese to put their money into QDII schemes. Which dovetails nicely with the creation of two new stocks-focused QDII funds from Huaxia and Harvest, following on the heels of China Southern’s fund, which was the first of its kind. Curiously, though, the through-train scheme, which would allow individual mainland investors to buy Hong Kong stocks, has been derailed. The only news about it since its initial unveiling on August 20 is the fact that quotas on investment will now likely be put in place, and that participation would be limited to China’s major cities. But if the authorities are trying to boost outbound investment, why would they put the brakes on the through-train scheme?