Buffett reaps $1 billion profit on Chinese carmaker

NEW YORK Fri Jul 31, 2009 11:40am EDT

Billionaire investor Warren Buffett, chief executive officer of Berkshire Hathaway, smiles as he meets hedge fund manager Zhao Danyang (not pictured) who placed the winning bid in a charity auction for lunch with Buffett at New York's famous steak house, Smith&Wollensky, June 24, 2009. REUTERS/Chip East

Billionaire investor Warren Buffett, chief executive officer of Berkshire Hathaway, smiles as he meets hedge fund manager Zhao Danyang (not pictured) who placed the winning bid in a charity auction for lunch with Buffett at New York's famous steak house, Smith&Wollensky, June 24, 2009.

Credit: Reuters/Chip East

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NEW YORK (Reuters) - Warren Buffett's Berkshire Hathaway Inc has realized a $1.02 billion paper profit on a 10-month-old investment in BYD Co after shares in the Chinese car and battery maker quintupled.

Berkshire's MidAmerican Energy Holdings Co unit had agreed last September 26 to buy 225 million BYD shares at HK$8 each, a transaction then worth about $230 million.

The China Securities Regulatory Commission on Thursday granted approval for the transaction, which gives Berkshire a 9.89 percent stake. BYD shares closed Friday at HK$42.90, valuing Berkshire's stake at HK$9.65 billion, or about $1.25 billion.

Hong Kong's benchmark Hang Seng index is up 10 percent since Berkshire revealed the BYD investment.

Berkshire agreed to the stake three days after deciding to buy $5 billion of Goldman Sachs Group Inc preferred shares, despite the then-pervasive market turmoil after Lehman Brothers Holdings Inc's bankruptcy.

Warrants attached to the Goldman investment have since generated a $2 billion paper profit for Berkshire.

"Buffett has grown more comfortable investing in foreign companies in recent years," said Andy Kern, who writes the blog Berkshire Ruminations and is a doctoral candidate at the University of Missouri-Columbia.

"Domestically, Buffett is taking advantage of Berkshire's solid capital position," he added, "while internationally, it's more that Buffett is simply finding bargains."

Other non-U.S. investments by Berkshire include the reinsurer Swiss Re and the South Korean steelmaker Posco.

Earlier this decade, Berkshire made a few billion dollars on what had been a $488 million investment in Chinese oil company PetroChina Co.

Buffett is the world's second-richest person, after Microsoft Corp co-founder and Berkshire director Bill Gates, according to Forbes magazine.

Founded in Shenzhen in 1995 as a maker of rechargeable batteries, BYD expanded into mobile phones and automobiles.

It expects to sell 400,000 vehicles this year, and targets the sale of as many as 9 million by 2025, according to Henry Li, general manager of BYD Auto's export arm.

BYD Auto launched its first plug-in hybrid vehicle, the F3 DM sedan, last December.

Berkshire, based in Omaha, Nebraska, is a roughly $150 billion conglomerate that has close to 80 businesses selling such things as car insurance, ice cream and underwear, and which invests in dozens of companies.

Analysts on average expect Berkshire on August 7 to report a decline in second-quarter operating profit. Net income and Berkshire's book value may grow if rising stock markets boost the value of Berkshire's derivatives contracts.

Berkshire Class A shares were up $305 at $97,100 in morning trading on the New York Stock Exchange.

(US$1 = HK$7.75)

(Additional reporting by James Pomfret and Joanne Chiu in Shenzhen; Editing by Steve Orlofsky)

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