China wealth fund buys into Visa's IPO

BEIJING (Reuters) - China's sovereign wealth fund has taken a stake in Visa Inc V.N, according to a media report on Tuesday, dipping its toe back into the market as Beijing agonizes over whether to be more aggressive in its overseas investments.

Regular, platinum and gold Visa cards are displayed in New York March 18, 2008. REUTERS/Chip East

Scarred by big paper losses that China Investment Corp (CIC) -- the wealth fund -- and China Development Bank have suffered on investments they made last year, some policy makers are counseling caution, saying China still lacks expertise.

But others scent that a meltdown in U.S. financial stocks -- culminating in the fire sale of investment bank Bear Stearns BSC.N -- is a chance for the government and state-owned banks and firms to snap up bargains.

“Because of the subprime crisis, the value of financial assets in the United States has fallen to a more reasonable range, which creates a fairly good opportunity for China to invest,” said Li Ruogu, president of Export-Import Bank of China.

In an article to be published in the International Economic Review, a Beijing academic journal, Li said China urgently needed to invest abroad to diversify its huge foreign exchange reserves, which exceeded $1.6 trillion at the end of February.

CIC, which separately manages $200 billion, invested more than $100 million in Visa’s initial public offering last week, Caijing magazine reported on its Web site,

Caijing cited unidentified sources. CIC declined to comment.

China Life Insurance Co 601628.SS said on Monday that it had also bought into Visa's offering, which raised $17.9 billion in the largest-ever U.S. IPO.

The country’s largest insurer congratulated itself that the value of its $300 million stake had already risen by about 50 percent.

That contrasts with the losses that CIC is showing on the $3 billion it paid for a 9.9 percent stake in U.S. private-equity group Blackstone BX.N last May and that China Development Bank (CDB) is nursing on the 2.2 billion euros it paid for 3.1 percent of British bank Barclays BARC.L in July.

And CITIC Securities would presumably have lost most of its planned $1 billion investment in Bear Stearns, which is being sold for a song to JPMorgan, if Chinese regulators had approved the deal in time.


These setbacks have sparked fierce criticism online and soured the political mood for Chinese institutions to go abroad.

State-owned CDB had planned to invest in Citigroup C.N but failed to get the go-ahead from China's banking regulator because of a more acute awareness of the risks involved, bankers said.

Guo Shuqing, chairman of China Construction Bank 0939.HK301939.SS, said his bank looked at 26 possible investments over the past year but did not follow through due to worries ranging from interest rate risk to the coolness of overseas authorities.

“I think it’s important to remind you that Chinese companies need to be more cautious and more careful (in investing abroad), because we really have no experience in this field,” Guo told a forum over the weekend.

Li from China Exim Bank also highlighted the risks and said China should not rush to “make wedding gowns for others” -- a Chinese warning against giving something away.

But David Li, a Tsinghua University professor, said the U.S. subprime mortgage crisis and ensuing credit squeeze had made Western governments’ more receptive to foreign buyers. China should not let the chance go.

Even without representation on the board of the company it has bought into, a big Chinese shareholder would have the management’s ear: “We should invest for influence and for the right to know, not for short-term financial gains,” Li, a member of China’s top political advisory body, said last week.

For Frank Gong, chief China economist at JP Morgan, the danger is that Beijing, in a futile attempt to time the market and thus minimize potential losses, will drag its heels in approving planned investments.

“The risk definitely is that Chinese policy makers will move too slow and China will miss out this once-in-a century opportunity,” Gong told reporters.

Reporting by Zhou Xin; Editing by Alan Wheatley