The deal marks China’s latest move to win influence over Western-owned energy assets to feed its fast-growing economy. It is also Sinopec’s major purchase in Brazil in just a year after it made a $7 billion purchase from Repsol for a 40 percent stake in its Brazil division.
“For Sinopec, there are not many opportunities to grow in the traditional domestic upstream oil and gas sector — overseas acquisition is an area to find growth,” said UOB Kay Hian analyst Yan Shi.
“It will benefit Sinopec on upstream reserves, and reduce risks in its money-losing downstream operation.”
Sinopec, Asia’s biggest oil refiner, expected the deal will expand its overseas oil and gas business operations and boost its oil and output growth.
Galp’s primary assets in Brazil include four deep-water blocks of BM-S-11, BM-S-24, BM-S-8 and BM-S-21 in the Santos Basin, it said.
Sinopec expected it would receive 21,300 barrels of oil equivalent per day (boedp) in 2015 and production would reach a peak of 112,500 boedp in 2024.
Under the agreement, Sinopec’s wholly owned unit, Sinopec International Exploration and Production Corp (SIPC), will take new shares to be issued by Galp and assume shareholder loans, Sinopec Group said in a statement.
“Taking into consideration this investment and projected future capital expenditure, the total cash payout amounts to approximately $5.18 billion at closing,” Sinopec said.
The transaction must be approved by the Chinese government.
China’s outbound M&A deals this year totaled $37.6 billion, down from $54.1 billion last year, according to Thomson Reuters data.
The deal would help Galp, a newcomer to large-scale oil projects, to finance its stake in the development of massive oil fields in the deepwater region known as the subsalt region in Brazil–site of the largest oil discovery in the Americas in more than 30 years.
“This capital increase significantly strengthens Galp Energia’s capital structure, fully securing its funding needs for the future expansion and development of its upstream activities,” Galp said in a statement.
Sinopec’s overseas acquisition strategy is partly guided by the desire to build up scale in certain countries, including Brazil, said a company official who declined to be named.
Galp is a minority partner with Brazil’s state-run oil company Petrobras in key offshore discoveries, including the vast Lula field, formerly known as Tupi, as well as the Cernambi and Iara finds.
Sinopec Group is the parent of Hong Kong-listed and Shanghai-listed China Petroleum & Chemical Corp. The group does overseas upstream oil and gas investment and operations via its wholly owned unit SIPC.
By Judy Hua, Wan Xu and Ken Wills (Reuters)
- China’s Sinopec buys $5.2-billion stake in Brazil’s Galp (business.financialpost.com)
For a few years now, the banking industry has shouldered much of the blame for the massive financial crisis that is threatening the health of the global economy, while many others have been quick to point out the glaring lack of financial regulation. But, interestingly, there is now a growing awareness of what is known as the “shadow banking system” and findings have shown that they may have been the ones who caused the crisis after all.
HONG KONG – With world leaders meeting at the end of this week at the G-20 summit in Cannes, France, the next economic minefield that they will face is already coming into view. It is likely to take the form of an opaque global credit glut, turbocharged by the fragile mixture of too-big-to-fail global banking with a huge and largely unwatched and unregulated shadow banking sector.
To be sure, that is not what many see. Federal Reserve Board Chairman Ben Bernanke and others have blamed the financial crisis of 2008 on a global savings glut, which fuelled flows of money from high-savings emerging-market economies – especially in Asia – that run chronic balance-of-payments surpluses. According to this school of thought, excessive savings pushed long-term interest rates down to rock-bottom levels, leading to asset bubbles in the United States and elsewhere.
But Claudio Borio and Piti Disayat, economists at the Bank for International Settlements, have argued convincingly that the savings-glut theory fails to explain the unsustainable credit creation in the run-up to the 2008 crisis. They have shown that the major capital inflows were not from emerging markets, but from Europe, where there was no net balance-of-payments surplus.
The alternative theory – of a global credit glut – gained more ground with the release last week of the Financial Stability Board’s report on shadow banking. The FSB report contains startling revelations about the scale of global shadow banking, which it defines as “credit intermediation involving entities and activities outside the regular banking system.”
The report, which was requested by G-20 leaders at their summit in Seoul last November, found that between 2002 and 2007, the shadow banking system increased by $33 trillion, more than doubling in asset size from $7 trillion to $60 trillion. This is 8.5 times higher than the total US current-account deficit of $3.9 trillion during the same period.
The shadow banking system is estimated at roughly 25-30% of the global financial system ($250 trillion, excluding derivatives) and at half of total global banking assets. This represents a huge regulatory “black hole” at the center of the global financial system, hitherto not closely monitored for monetary and financial stability purposes. Its importance was exposed only by analysis of the key roles played by structured investment vehicles (SIVs) and money-market funds (MMFs) in the 2008 meltdown.
The shadow banking system is complex, because it comprises a mix of institutions and vehicles. Investment funds other than MMFs account for 29% of total, and SIVs make up 9%, but the shadow system also includes public financial institutions (such as the government-backed mortgage lender Fannie Mae in the US). They are some of the largest counterparties with the regular banking system, and their combined credit creation and proprietary trading and hedging may account for much of the global liquidity flows that make monetary and financial stability so difficult to ensure.
The trouble is that, by 2010, the shadow banking system was about the same size as it was just before the 2007 market crash, whereas the regulated global banking system was 18% larger than in 2007. That is why the FSB report pinpoints the shadow banking system, together with the large global banks, as sources of systemic risk. But the global problem is likely to be much larger than the sum of its parts. Specifically, global credit creation by the regular and shadow banking systems is likely to be significantly larger than the sum of the credit creation currently measured by national statistics.
There are several reasons for this. First, credit that can be, and is, created offshore and through off-balance-sheet SIVs is not captured by national balance-of-payments statistics. In other words, while a “savings” glut may contribute to low interest rates and fuel excess credit creation, it is not the main cause.
Second, the volatile “carry trade” is notoriously difficult to measure, because most of it is conducted through derivatives in options, forwards, and swaps, which are treated as off-balance sheet – that is, as net numbers that are below the line in accounting terms. Thus, in gross terms, the leverage effects are larger than currently reported.
Third, the interaction between the shadow banking system and the global banks is highly concentrated, because the global banks act as prime brokers, particularly for derivative trades. Data from the US Comptroller of Currency suggest that the top five US banks account for 96% of the total over-the-counter (OTC) derivative trades in the US.
Indeed, the nightmare scenario haunting the world is the collapse of another shadow banking entity, causing global trade to freeze, as happened in 2008. The Basel III agreement on capital adequacy and other recent reforms still have not ring-fenced trade financing from these potential shocks.
We urgently need to monitor and understand the role of shadow banking and the too-big-to-fail banks in creating the global credit glut. Obtaining a full picture of global monetary and credit numbers and their determinants is a vital first step.
So far, the G-20’s call to “think globally” has turned into “act locally.” We hope that the G-20 leaders will think systemically at Cannes, and act nationally and cooperatively to defuse the global credit glut minefield.
By Andrew Sheng
Copyright: Project-Syndicate, 2011
Andrew Sheng is President of the Fung Global Institute, a new Hong Kong-based think tank that seeks to understand global issues from Asian perspectives. He was Chairman of the Hong Kong Securities and Futures Commission and is an adviser to China’s Banking Regulatory Commission.
- China’s Shadow Banking System: The Next Subprime? (blogs.wsj.com)
- G20: Merkel desperate to solve Greek debt crisis (guardian.co.uk)
- Craig Stephen’s This Week in China: Beijing talks tough on European debt (marketwatch.com)
- Shadow banking tops pre-crisis level (theglobeandmail.com)
- Why 2012 will be a repeat of 2008 (wealthmans.wordpress.com)
PlanetSolar‘s TÛRANOR is currently on its way to becoming the first solar-powered boat to circumnavigate the globe. Driven by a silent, pollution-free electrical engine that is powered exclusively by solar energy, the PlanetSolar team has two goals in mind. The first objective is to show that current technologies aimed at improving energy efficiency are reliable and effective. The second is to advance scientific research in the field of renewable energy.
The world’s largest solar-powered boat has already been to Miami, Cancun, Brisbane, Hong Kong and just made its way to Vietnam. Measuring around 101 feet long and 49 feet wide, the $26 million TÛRANOR can comfortably transport 50 passengers.
The Swiss-designed, German-built ship is powered by over 5,380 square feet of solar paneling. The panels power two electric motors, which can reach 15 miles per hour. The panels can also soak up enough stored energy to power the boat in cloudy weather for three days. The excess energy is stored in a giant lithium-ion battery.
And, in case you were wondering how PlanetSolar came up the ship’s name, TÛRANOR is derived from the “Lord of the Rings” saga by J.R.R. Tolkien and translates to: “the power of the sun” and “victory.”
- Pictures: World’s largest solar yacht, the Tûranor PlanetSolar (digitaltrends.com)
- PlanetSolar Turanor: The World’s Largest Solar-Powered Boat (techeblog.com)
- Sealander Amphibious Camping Trailer Doubles as Houseboat (techeblog.com)
- PlanetSolar: World’s Largest Solar Powered Electric Boat. Green Designs Will Save the World (worldnewsrecord.wordpress.com)
- Green Column: Around the World on Solar Power Alone (nytimes.com)
- World’s largest solar-powered yacht arrives in Hong Kong on home stretch of around-the-world voyage (digitaltrends.com)
- World tour in a solar powered boat. (izitso.net)
- The fall and rise of the electric boat (ravcasleygera.wordpress.com)
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading
Tuesday 06 October 2009
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China’s former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. “Bilateral quarrels and clashes are unavoidable,” he told the Asia and Africa Review. “We cannot lower vigilance against hostility in the Middle East over energy interests and security.”
This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region’s conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.
The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. “One of the legacies of this crisis may be a recognition of changed economic power relations,” he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China’s extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America’s power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.
Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.
China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.
Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China’s growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China’s reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.
Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America’s trading partners have been left to cope with the impact of Washington’s control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.
The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. “The Russians will eventually bring in the rouble to the basket of currencies,” a prominent Hong Kong broker told The Independent. “The Brits are stuck in the middle and will come into the euro. They have no choice because they won’t be able to use the US dollar.”
Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years’ time. The current deadline for the currency transition is 2018.
The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.
“These plans will change the face of international financial transactions,” one Chinese banker said. “America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate.”
Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.
- ‘China will overtake America, the only question is when’
- ‘The end of the dollar spells the rise of a new order’
- Are The Middle East Wars Really About Forcing the World Into Dollars and Private Central Banking? (zerohedge.com)
- Attempts to Bypass the Dollar (economicnoise.com)
- The Isolation of Iran (lewrockwell.com)
- China gets sucked into the Middle East (asiahacks.com)