atans1

Temasek: Where things can go wrong.

In China, Temasek on 19/10/2011 at 6:44 am

Credit Suisse analyst Sanjay Jain said in a report last week that he thinks that up to 12%  of all of China’s outstanding loans may go bad and non-performing loans may likely account for all of the banks’ equity. Current NPL ratios hover at around 1% or the top Chinese banks.

Ops a daisy. As Temasek has major (and so far very profitable) stakes in two of China’s top four bank, Bank of China (4%) and Construction Bank of China (7%), predictions such as this (and Credit Suisse is not alone, just the latest and most pessimistic) should worry S’poreans.

As Temasek got the initial substantial stakes at bargain prices (courtesy of the Chinese government), selling part or all these stakes requires Chinese approval. At a time when the Chinese government is supporting the shares of the major four banks, such approval is unlikely.

Not another debacle like Shin, ABC Learning, Merrill Lynch or Barclays in the making?

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  1. No worries lah. S’pore will become 27th province of China. Then CCP will authorise some of their US$3T reserves to bail out the new province. Temasek people won’t be lynched by the masses. And China gets a new deepwater port to project power into SE Asia and South China Seas — The Fortress of Nanyang. China will move their army, airforce and navy here — plenty of jobs for Sinkies. Just like the good old British days. Everybody happy.

  2. [...] Temasek State Funds Investments – Thoughts of a Cynical Investor: Temasek: Where things can go wrong. – Singapore Notes: Betting On The [...]

  3. So far Temasek has proved no match to the foreign bankers. I am not optimistic.

  4. Will they raise the reserves through higher property prices or through higher CPF?

  5. I believe these loans mentioned are predominantly loans to the Chinese property sector, whether it is to the construction companies, local government-linked SIVs or private individual investors. We all know that the Chinese are risk-takers (specifically, they have a perchant for gambling), so there is a high likelihood that the property market in China is experiencing a leverage-driven asset bubble. From history, we can see that when bubbles burst, it doesn’t deflate slowly but instead crashes.

    My conclusion is that Chinese banks are facing large amounts of potential bad loans, much like the US, Ireland and Iceland in recent times. Although the Chinese government can afford to bail out the banks and save its economy (largely due to its strong reserve position), private investors will likely have take a loss on their investments, maybe even get completely wiped out. All I can say is that if Temasek screws it up again, I hope that heads roll this time around! Accountability!!!

  6. Good post. One quibble, though: I believe there are no longer any selling restrictions on Temasek’s BOC and CCB stakes. In fact Temasek sold off some CCB shares in July this year, only to buy part of BofA’s stake in September (link).

    In practice BOC, CCB and other majority state-owned Chinese banks operate not so much as profit-making companies but as arms of the state. The present round of NPLs were incurred as part of the 2009 stimulus where they shovelled money out like mad and it went into real estate speculation, overinvestment etc. There will surely be a need for new capital, the only question is how much and from who. The party would no doubt prefer gullible or overconfident foreigners to take the hit as opposed to the state. My own belief is that these investments are as much political as commercial, if not more, so probably Temasek would be happy to sit on a big illiquid stake and some paper losses if that comes with political goodwill.

    • I’m sure that Temasek cannot dispose of a big stake without getting Chinese approval, whatever the legal position. is.

      Who would dare buy?

      What it been trading is on the margin amounts.

  7. Temsek cannot dispose of big stake without obtaining Chinese approval, whatever the legal position is.
    Looks like they need to dispose of those in Temasek if it is worth any cent.

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