Business

The Agricultural Bank of China (ABC) will get a US$19 billion capital injection from a unit of the country’s Sovereign Wealth Fund, according to a vice president with the lender on Wednesday.

Central Huijin Investment Ltd., a unit of the US$200 billion China Investment Corp., will inject into the bank US dollars equal to 130 billion yuan (US$19.01 billion), ABC vice president Pan Gongsheng told a press conference.

Central Huijin Investment and the Ministry of Finance will each hold a 50 percent stake in ABC, the least profitable of the four biggest state-owned commercial banks.

Technical preparation for the lender’s initial public offering (IP0) would be finished in the second half of 2009. He added a specific timetable and place for the IPO hadn’t been decided, but the Shanghai and the Hong Kong markets would be favored candidates.

A total of 817.97 billion yuan of bad loans would be put into a fund, jointly managed by the Ministry of Finance and ABC, which was estimated to take five years to dispose of the non-performing assets.

The bank’s non-performing loans (NPLs) ratio stood at 23.5 percent through 2007. Pan said the figure was expected to be lowered to 4.1 percent after the reform, and the capital-adequacy ratio would reach 8 percent, which would meet the China Banking Regulatory Commission’s requirement.

Pan said the bank was still considering whether to bring in strategic investors. The investment value of state-owned banks had been recognized worldwide.

He noted the bank intended to issue 20 billion yuan of subordinated bonds at the end of the year or early next year to strengthen its balance sheet. More subordinated bond sales would follow.

The announcement came one day after the State Council, China’s Cabinet, approved in principle ABC’s restructuring, which would pave the way for the last of the country’s big four state owned commercial banks to go public.

“The bank should become a modern commercial lender known for its adequate capital, sound governance, strict internal control, safe operation, quality service, good profitability and strong global competitiveness,” according to the executive meeting of the State Council, presided over by Premier Wen Jiabao on Tuesday.

The bank should also expand networks in rural areas and increase credit to focus on supporting farmers, agriculture and the countryside, according to the meeting.

Pan said ABC had accumulative and obvious competitiveness in rural banking as it never stopped its rural expansion in the past few years. The bank vowed to continue to explore sustainable and stable business models and facilitate banking service for farmers.

China had always urged its commercial lenders to go public and introduce foreign strategic investors to press them to meet international standards and improve competitiveness.

China Construction Bank was the first among the “Big Four” to get listed in Hong Kong in October 2005, which was followed by the Bank of China in June 2006. The Industrial and Commercial Bank of China raised a record US$22 billion in its A-share sales in October the same year.

The three banks were among the 10 largest lenders by market value after the effective government recapitalization and public listings.

(Xinhua News Agency October 23, 2008)

Editor: evewen
23 Oct 2008 10:07:27 GMT

Oct. 23, 2008 (China Knowledge) – Agricultural Bank of China (ABC), the only one not listed among China’s Big Four state-owned banks, will get RMB 130 billion (US$19 billion) injection from Central Huijin Investment Co, an investment arm of China’s sovereign wealth fund China Investment Corp (CIC), said ABC’s vice president Pan Gongsheng on Wednesday.

The capital injection is said to pave the way for ABC’s eventual public listing, and the lender maybe complete preparations for IPO in the second half of 2009.

Upon the completion of the capital injection, Central Huijin will take 50% stake in ABC, and China’s Ministry of Finance (MOF) will own the remainder. By the end of 2008 or later, ABC is expected to be reformed into a stockholding bank.

Pan also noted the bank will issue several batches of subordinated bonds at the end of this year and the first quarter of next year in a bid to replenish its working capital prior to the initial public offering (IPO). The first batch of such bonds is expected to be RMB 20 billion.

The Chinese bank will work together with the MOF to dispose about RMB 800 billion non-performing loans (NPLs) within five years.

Agricultural Bank of China, established in 1979 to serve 800 million farmers in the country, has won approval from China’s State Council on its a-year-delayed shareholding reform plan in an executive meeting on Tuesday.

Chinese venture-backed online video firms, which were on the edge of making profits, are now under risks of bankruptcy with the spreading US financial crisis, said a report in Monday’s Economic Observer newspaper.

US venture capital firms (VCs) are in retreat from the Chinese market due to the financial crisis, and have withdrawn funds from many of the video sites.

Last year, there was US$300 million from VCs poured into the Chinese online video market, and an astonishing US$100 million flooded in during a single week this April. The second largest Chinese online video website, Tudou.com, alone absorbed US$57 million from VCs this April, while the largest, Youku.com, announced it had raised US$40 million from VC investors at the end of June.

According to statistics from the China Internet Network Information Center, online video surpassed search engines to become the favorite sites for Chinese netizens by the end of June, stoked by the rush of venture capital.

However, this tide has fallen back, as most US-based VC giants are troubled by the most serious financial crisis since 1929 in US history.

Thrifty venture-backed firms

About two thirds of capital injected into Chinese venture-backed internet companies is from overseas VCs, and US VCs in particular, said Gu Yongqiang, president of Youku.com. The breaking financial crisis is also taking a toll on the residents of Sand Hill Road, which led to the withdrawal of hot money and a higher level financing thresholds, said Gu.

China’s largest mobile TV group, Towona, will be the first to feel the capital shortage. The company has raised a total of US$95 million so far from Cathay Capital Group, Walden International, Chengwei Ventures and several other VC giants. It has been expanding in the Chinese mobile TV market rapidly and has released its plan to go public at the end of this year.

However, the expenditure for its expansion is also huge. Towona ended cooperation with Shanxi Public Mobile Television because it couldn’t pay the contract. Although Towona took in another US$50 million from Baring Private Equity Asia in February this year, it was far from enough to quench Towona’s thirst for capital.

“Before Towona goes public, the company could attract more VCs if it profits well.” said one of Towona’s partners, “However, Towona has lowered its profit expectation and VC investors are becoming more and more cautious with the financial crisis. It will be difficult for Towona to get more VC investments.”

The situation is similar with Tudou.com. Online video websites are undoubtedly the biggest “black holes”, crying for huge amounts of investment. Tudou.com has had to seek more capital every 9 months in the past three years, but it still hasn’t started to make profits.

“We must strive to cut website flows that don’t generate instant revenue,” said Tudou.com’s CEO Wang Wei. “Although this may let our rivals surpass Tudou.com in website use, we must be frugal to survive under the shortage of further investments,” Wang added.

Retreating VCs

Many hot money and hedge funds have been withdrawn from China under the impact of the financial crisis, noticed Zhang Fan, a founding managing partner of Sequoia Capital. Unlike those VCs that make long-term investments, some have rushed into China to take a ride on the appreciation of the RMB, said Zhang. At the same time, China’s local VC supplies are also ebbing.

The financial crisis has held back and even eliminated many IPO plans. So far this year, only a few venture-backed firms, such as A8 Digital Music Holdings Ltd and China Distance Education Holdings Ltd, successfully went public in the stock markets. Even less than expected, VisionChina Media was the unique Chinese media company that successively raised US$101.2 million from private placements in the US market.

The small number of IPOs has hit VC investors’ confidence even further. With companies that had been invested in heavily but yet to go public, VC investors have to continue to invest more, or the previously invested capital will gain nothing.

“If the IPO plan is impeded or the IPO value is lower than expected, the VC investors will reassess the investment conditions,” said Youku.com’s president Gu, who was once a VC investor himself.

Now, VC investors are becoming more prudent. The companies must score 8 or even 9 (with 10 as perfect) in the assessment and only then will attract VC investment, whereas before they would have been satisfied scoring between 5 and 7, said Gu.

Financial Crisis: an opportunity for VCs?

Although the VCs have become much more cautious, they are only returning to rational levels, said Yang Dong, Chairman of SoftBank Asia Infrastructure Fund.

The same idea was echoed by Ru Linqi, a managing partner of KPCB China. It currently takes three to four months to assess a company in need of VCs, compared with less than two months for hot money holders to make their investment decisions beforehand. But three months is a reasonable period for assessing a company, said Ru.

Sequoia Capital’s Zhang feels far away from the financial crisis, while he keeps concentrating on looking for companies with great growth potential to invest in. Even for those companies whose IPO plans are interrupted by the current financial crisis, we will insist on our choices, said Zhang.

Although the current financial crisis has disrupted many industries and growing companies, it will also leave many opportunities for those who are well prepared, said Ye Dong, president of China’s Tsing Capital.

(China Daily October 17, 2008)

Apple Inc launched its new iPod family in China yesterday, including the iPod Shuffle and the WiFi-featured iPod Touch – the first iPod to feature a handwritten Chinese language input system.

The new products also include the redesigned slim-sized iPod Nano model – the thinnest iPod Apple has ever made. The Nano, with nine optional colors, comes in two models – an eight-gigabyte model that can hold 2,000 songs that costs 1,298 yuan (US$130), and a 16-gigabyte model that costs 1,798 yuan.

The iPod Shuffle, Apple’s entry-level music player, sells from 398 yuan for the 1GB memory version in China.

MP3 players costing below 400 yuan had snapped up more than a 40 percent share of the market by the middle of this year, according to the Beijing-based research firm CCID.

China’s MP3 device sales totaled 2.5 million units in the first six months, a drop of 43.76 percent, CCID said.

“Apple and Samsung products occupied most market share by revenue in China as they provide fashion design and customized functions,” said Li Ying, a consumer electronics analyst at CCID, which is authorized by the Ministry of Industry and Information Technology.

Apple has sold 160 million iPods since their introduction in 2001, making them the runaway leader in sales of portable music players.

Apple said a highlight of the new models was the “genius” feature, which helped users automatically create a new play list of similar songs from the user’s own library.

Apple has also added a GPS function, accessories for recording, and handwriting Chinese language input functions which were only previously available on iPhone into their flagship iPod, the iPod Touch. The models sell from 1,998 yuan, for 8GB memory, to 3,498 yuan for 32GB memory.

In the software sector, about 2,600 applications are available in Apple China’s App Store. Of those 600 are free. The application number is close to the level in the United States which has more than 3,000 applications. However, some of those were designed for iPhone, which is not available in China.

(Shanghai Daily September 25, 2008)

Editor: Bruce Meng
7 Oct 2008 02:51:27 GMT

CHICAGO, Oct 6 – Access to credit is the lifeblood of maritime trade and the credit crunch has largely cut off that supply, threatening to weed out weaker shippers and shipyards, as well as hamper global trade.

"The credit crisis has made banks nervous and the last thing on their minds is making fresh loans," said Omar Nokta, an analyst at investment bank Dahlman Rose. "Some ship owners and shipyards in particular are feeling the pain."

The outlook is worst for the bulk shipping industry, which hauls raw materials such as iron ore, grain and cement. More than 90 percent of the world’s traded goods by volume is carried by sea.

Access to credit has been cut off at an inopportune time for the industry, after several years of robust growth in markets like India and China — accompanied by huge infrastructure investments — spurred a race to build new ships, creating three-year backlogs on shipyard order books.

Orders reached a milestone of 10,000 ships on Aug. 1. But ordering ships is one thing, paying for them is another.

"There has been a further tightening (in lending conditions) over the summer," Harald Serck-Hanssen, Norwegian bank DnB NOR’s ship-financing unit said last month.

Some banks had shut their books for the year and the limited shipping lending banking universe was shrinking, he said.

Serck-Hanssen spoke before the bloodbath on Wall Street of the past two weeks in which credit conditions have worsened for shippers and shipyards, especially newer or smaller operators.

"Some of the newer shipyards (in South Korea and China) are going to suffer a great disappointment," said Polys Hajioannu, chief executive of bulk shipper Safe Bulkers Inc. "They will not be able to deliver a number of ships."

"Some smaller shippers will also have trouble getting financing to pay for the ships they ordered," he added.

Many of those companies put down a 20 percent deposit for their ships when credit conditions were better, but will have trouble raising the rest, Hajioannu said.

Some shippers and analysts have noted that letters of credit — bank guarantees on behalf of buyers that are given to exporters and which are an important aspect of global trade — have become scarce, leaving some cargoes stranded.

And analysts like Dahlman’s Nokta argue the credit crunch may force governments in Asia to slash infrastructure spending — on roads, railways, bridges, airports — if they need to bolster their financial sectors in a slowdown.

A LONG WAY DOWN

The market turned sour rather quickly. In May, the Baltic Exchange’s chief sea freight index for global raw materials hit a lifetime high of 11,793 points on demand in fast-growing developing markets including China and India.

The index has plummeted since then due to the financial turmoil on international markets, falling commodity prices and fears that Asian demand will falter. On Oct. 2 the freight index fell to 2,990 points, nearly 75 percent down from the May high and its lowest level in more than two years.

Despite that decline and the apparent lack of available credit, shipyards have reported few cancellations so far for bulk carriers or other ships,

For instance, South Korea’s Hyundai Mipo Dockyard Co Ltd announced on Aug. 1 it had canceled a 197 billion won ($164 million) order for four product carriers. But the company said this was not due to market issues but the problems of the buyer — an unidentified European company — and at the same time announced a 411.9 billion won order for eight bulk ships.

"Concerns over a potential decline in shipbuilding orders and financial market instability are overplayed," said Lee Jae-kyu, a Mirae Asset Securities analyst. "However, Chinese and second-tier players are likely to face challenges in receiving orders due to toughened terms and ship financing conditions."

Container ship company Global Ship Lease Inc CEO Ian Webber said loans are "still available for good projects."

But Stamatis Molaris, CEO of Excel Maritime Carriers Ltd, said that if the credit crunch does not end soon then the newer shipyards will "fall like a house of cards."

Molaris said some cargoes had been left on docks in numerous markets as banks were more reluctant to fund trade.

"The demand for goods is there; there is just not enough liquidity to move those goods around," he said.

Tight credit markets, plus an increased emphasis on letters of credit "may create a headwind for dry bulk stocks if rates remain low enough to drive charter defaults," Wachovia analyst Justin Yagerman wrote in a note for clients

Dahlman’s Nokta said a crucial test for the sector will be how badly the credit crisis affects Asia’s financial sectors.

"If Asian governments have to bail out their financial institutions, funding could be cut for important infrastructure investments," Nokta said.

But Safe Bulkers’ CEO Hajioannu said as long as the credit crisis is dealt with quickly , Asian demand will stay strong.

"Developing countries like China and India are half way through an unprecedented modernization requiring massive infrastructure spending," Hajioannou said. "There is no way that process can be stopped in the middle."

Editor: Bruce Meng
6 Oct 2008 09:43:41 GMT

MUMBAI/HONG KONG, Oct 6 – Private equity firms are starting to team up to bid for a $400 million stake in India’s Firstsource Solutions, sources familiar with the matter said, amid concerns that the price of the deal is too high.

Apax Capital Partners, Blackstone Group and Providence Equity Partners are among the firms looking to bid for the stake that could total 88 percent in the back-office firm, the banking sources say, though it is still not clear which firms will join together.

First round bids are expected in the next few weeks.

While India’s back-office industry is attractive to private equity investors seeking steady cash flows and strong business prospects, sealing a deal is tough amid the market turmoil.

Shares in Firstsource, founded by ICICI Bank, fell on Monday to 26.30 rupees ($0.55), their lowest since the firm went public in February 2007. The stock has lost nearly a third in the last three months and more than 60 percent in 2008.

That may not be the only obstacle. Firstsource has a $275 million bond convertible into equity by 2012 at treble the current price.

"The bond holders have the right to veto any large stake sale. But there are ways to sidestep it. One way is to pay them back," a banker involved in the deal said, but this would add to the acquirer’s cost.

Firstsource also posted a $10.6 million loss in the June quarter and has said U.S. credit woes have hurt its operations, which are among factors expected to reduce offers for the stake, three bankers involved in the deal said.

Queueing up to sell their holdings are ICICI, India’s second-largest bank, Singapore-owned Temasek’s Aranda Investment and U.S.-based banking technology group Metavante, all financial investors.

Collectively they own 68.3 percent of Firstsource and banking sources said they were looking at 64 rupees a share, the same as the IPO price in early 2007, valuing the firm at $580 million. Goldman Sachs is advising all the sellers.

A deal is more likely below 50 rupees a share given the state of the market and the languishing stock price, the sources said.

Any sale would also include an open offer for another 20 percent to conform to Indian regulations.

MORE SUITORS

The sale comes as ICICI Bank, which owns about a quarter, grapples with interest rates at a seven-year high, slowing loan growth and the dwindling value of its overseas holdings.

ICICI Bank’s June quarter net profit fell for the first time in at least five years and analysts expect the bank to book $200 million in bond losses in the September quarter.

"We do not comment on market speculation in this respect," a spokesman for ICICI said in response to a query about plans to sell its holding. "ICICI Bank holds investments in a variety of companies including Firstsource and evaluates its options with respect to those investments on an ongoing basis," he said.

Officials at Apax, Blackstone and Providence declined comment.

Blackstone already controls back-office firm Intelenet Global Services and would want to consolidate its operations with Firstsource, which at one point was reported to be eyeing Citigroup’s Indian back-office operations.

Media reports have said Kohlberg Kravis Roberts& Co and ICICI Ventures, a unit of ICICI Bank, were also interested in the stake.

Bankers said an agreement for the sale could be reached before November. Sequoia Capital, which owns 4.6 percent could also sell out, one source said.

"The timing for the agreement boils down to the price. The controlling stake is juicy enough and bidders are aplenty to command a premium, but the asking price is way too high," said one banker who is heading a private equity firm’s bid.

Firstsource has 36 centres with 18,500 employees across India, the United States, the United Kingdom, Argentina and the Philippines. It reported a revenue of $332.4 million in 2007/08, according to its website. ($1 = 47.5 rupees)

Editor: Bruce Meng
6 Oct 2008 01:26:09 GMT

CHICAGO, Oct 5 – Access to credit is the lifeblood of maritime trade and the credit crunch has largely cut off that supply, threatening to weed out weaker shippers and shipyards, as well as hamper global trade.

"The credit crisis has made banks nervous and the last thing on their minds is making fresh loans," said Omar Nokta, an analyst at investment bank Dahlman Rose. "Some ship owners and shipyards in particular are feeling the pain."

The outlook is worst for the bulk shipping industry, which hauls raw materials such as iron ore, grain and cement. More than 90 percent of the world’s traded goods by volume is carried by sea.

Access to credit has been cut off at an inopportune time for the industry, after several years of robust growth in markets like India and China — accompanied by huge infrastructure investments — spurred a race to build new ships, creating three-year backlogs on shipyard order books.

Orders reached a milestone of 10,000 ships on Aug. 1. But ordering ships is one thing, paying for them is another.

"There has been a further tightening (in lending conditions) over the summer," Harald Serck-Hanssen, Norwegian bank DnB NOR’s ship-financing unit said last month.

Some banks had shut their books for the year and the limited shipping lending banking universe was shrinking, he said.

Serck-Hanssen spoke before the bloodbath on Wall Street of the past two weeks in which credit conditions have worsened for shippers and shipyards, especially newer or smaller operators.

"Some of the newer shipyards (in South Korea and China) are going to suffer a great disappointment," said Polys Hajioannu, chief executive of bulk shipper Safe Bulkers Inc. "They will not be able to deliver a number of ships."

"Some smaller shippers will also have trouble getting financing to pay for the ships they ordered," he added.

Many of those companies put down a 20 percent deposit for their ships when credit conditions were better, but will have trouble raising the rest, Hajioannu said.

Some shippers and analysts have noted that letters of credit — bank guarantees on behalf of buyers that are given to exporters and which are an important aspect of global trade — have become scarce, leaving some cargoes stranded.

And analysts like Dahlman’s Nokta argue the credit crunch may force governments in Asia to slash infrastructure spending — on roads, railways, bridges, airports — if they need to bolster their financial sectors in a slowdown.

A LONG WAY DOWN

The market turned sour rather quickly. In May, the Baltic Exchange’s chief sea freight index for global raw materials hit a lifetime high of 11,793 points on demand in fast-growing developing markets including China and India.

The index has plummeted since then due to the financial turmoil on international markets, falling commodity prices and fears that Asian demand will falter. On Oct. 2 the freight index fell to 2,990 points, nearly 75 percent down from the May high and its lowest level in more than two years.

Despite that decline and the apparent lack of available credit, shipyards have reported few cancellations so far for bulk carriers or other ships,

For instance, South Korea’s Hyundai Mipo Dockyard Co Ltd announced on Aug. 1 it had canceled a 197 billion won ($164 million) order for four product carriers. But the company said this was not due to market issues but the problems of the buyer — an unidentified European company — and at the same time announced a 411.9 billion won order for eight bulk ships.

"Concerns over a potential decline in shipbuilding orders and financial market instability are overplayed," said Lee Jae-kyu, a Mirae Asset Securities analyst. "However, Chinese and second-tier players are likely to face challenges in receiving orders due to toughened terms and ship financing conditions."

Container ship company Global Ship Lease Inc CEO Ian Webber said loans are "still available for good projects."

But Stamatis Molaris, CEO of Excel Maritime Carriers Ltd, said that if the credit crunch does not end soon then the newer shipyards will "fall like a house of cards."

Molaris said some cargoes had been left on docks in numerous markets as banks were more reluctant to fund trade.

"The demand for goods is there; there is just not enough liquidity to move those goods around," he said.

Tight credit markets, plus an increased emphasis on letters of credit "may create a headwind for dry bulk stocks if rates remain low enough to drive charter defaults," Wachovia analyst Justin Yagerman wrote in a note for clients

Dahlman’s Nokta said a crucial test for the sector will be how badly the credit crisis affects Asia’s financial sectors.

"If Asian governments have to bail out their financial institutions, funding could be cut for important infrastructure investments," Nokta said.

But Safe Bulkers’ CEO Hajioannu said as long as the credit crisis is dealt with quickly , Asian demand will stay strong.

"Developing countries like China and India are half way through an unprecedented modernization requiring massive infrastructure spending," Hajioannou said. "There is no way that process can be stopped in the middle."

Editor: Bruce Meng
26 Sep 2008 02:47:32 GMT

Toni Clarke

BOSTON, Sept. 25 – Small biotechnology companies with cash but failed or floundering products are in hot demand as partners for companies that are unable to raise money in the capital markets.

One of them is Nuvelo Inc, whose blood clot-dissolving drug alfimeprase failed earlier this year. It said on Thursday it will be acquired by privately held ARCA biopharma Inc., which makes treatments for cardiovascular diseases.

The deal gives ARCA access to Nuvelo’s money — it had $76 million in cash and short-term investments at the end of June — and it gives Nuvelo’s stockholders the chance to fight another day.

Companies such as Nuvelo, Replidyne Inc, Vaxgen Inc Cell Genesys Inc and Vanda Pharmaceuticals Inc are among a handful of once high-flying biotechs whose leading products have failed, but which retain significant cash on their balance sheets.

Some of these, including Replidyne and VaxGen, are openly touting that cash as an asset to attract partners. Others are likely entertaining proposals behind the scenes; and interest is running high.

"Given the state of the market, good companies that would otherwise have done an IPO are viewing this as a viable financing strategy," said Michael Brinkman, managing director of healthcare investment banking at Piper Jaffray & Co. "Every late-stage private company is looking at it; all the bankers are looking at it; and all the CEOs of cash shells are cognizant of it."

The Nuvelo agreement follows a recent deal between Novacea Inc, whose lead cancer drug Asentar failed a late-stage clinical trial, and privately held Transcept Pharmaceuticals Inc, which has an experimental sleep drug in late stage development. The deal gives Transcept some $90 million in cash and, incidentally, a public listing.

"The single biggest advantage for us was the ability to generate capital that would otherwise not have been accessible," said Glenn Oclassen, the chief executive of Transcept. "The market is very rugged for companies seeking IPO capital and we were no exception to the rule."

So-called cash shells have always existed, but have rarely been a financing option of choice.

"Now every one of them has a dance card that is full," said Dan Janney, managing director at Alta Partners, a venture capital company focused on life sciences.

Replidyne, which saw the failure of its experimental antibiotic, had about $64 million at the end of July; and Vaxgen, whose shares once topped $36 on hopes for its HIV vaccine, had $46.5 million in cash and investment securities at the end of July, or $38.5 million net of outstanding convertible debt.

These companies could make attractive acquisition targets, and unless they plan to give their money back to shareholders, they should all consider the cash shell route, said Brinkman.

"They should be considering this option because it is almost always going to be the fastest way to deliver shareholder value," he said.

For ARCA, the deal gives it a way to continue to bring forward its lead product, Gencaro, a heart-failure treatment that is currently under review by the U.S. Food and Drug Administration.

The company said the cash position of the combined company is expected to fund its operations at least through the expected regulatory approval of Gencaro in mid-2009.

Still, merging with a cash shell has its disadvantages for the acquiring company: Oclassen is swamped trying to meet all the new regulatory and disclosure requirements that come with being a public company.

"This wasn’t a gradual process," he said. "One day we were private and the next day we weren’t. We’re all running around like gerbils."

Editor: Bruce Meng
26 Sep 2008 10:06:59 GMT

* Ping An dives 9.7 pct on Fortis rumours

* China Mobile slides on regulatory uncertainties

* China Cosco tumbles tracking global freight index

HONG KONG, Sept 26 – Hong Kong shares dropped 2 percent on Friday as the fate of the U.S. bank bailout plan remained uncertain, while Ping An <2318.HK> was battered by rumours about trouble at Fortis <FOR.BR>, in which it holds a 5 percent stake.

U.S. stock futures dropped after the $700 billion rescue for the U.S. financial system had fallen into chaos on Thursday amid accusations Republican presidential candidate John McCain scuppered the deal, and U.S. authorities closed Washington Mutual and sold its assets to JP Morgan Chase & Co. [nSP65387]

Shares in China’s second-biggest insurer, Ping An Insurance <2318.HK>, dived 9.7 percent on Friday on talk that Fortis <FOR.BR> sought help from a rival bank to shore up its liquidity. [nHKG272806]

The company said it had not made any provisions against possible losses from its investment in the Belgian-Dutch financial group, but it did not rule out having to do so later.

"The impact on value is relatively small because it has already been largely mark-to-market through the balance sheet, but the impact on earnings if they are forced to take an impairment could be relatively large," said Christopher Esson an analyst at Credit Suisse.

Fortis saw its shares plunge by more than a fifth to a 14-month on Thursday even as the company categorically denied the rumours that the Dutch Central Bank had asked rival Rabobank to support its liquidity position. [ID:nLP49229]

The benchmark Hang Seng Index <.HSI> finished the morning session down 383.14 points at 18,551.29.

Mainboard turnover fell slightly to HK$29.2 billion ($3.7 billion) from HK$29.75 billion at mid-day on Thursday.

"JP Morgan’s buyout of Washington Mutual’s deposits shows that while there is frailty in the financial system, the solutions can be found within the system too," said Andrew Sullivan, sales trader with Main First Securities.

"We still need Congress to approve the $700 billion bailout plan but it’s good see that deals can still happen in this market if the price is right."

The China Enterprises Index <.HSCE> of top locally listed mainland Chinese firms fell 3.3 percent to 9,443.01.

Shares in Asia’s largest wireless carrier, China Mobile <0941.HK>, extended the previous session’s losses to fall another 3.7 percent as investors fretted over regulatory policies that are seen favouring smaller players over the market leader.

China Mobile’s parent is setting aside 50 billion yuan to help pay for the restructuring of the mainland telecom industry that is aimed at strengthening the weaker industry players, media reports in China and Hong Kong said.

China’s largest shipping conglomerate, China Cosco <1919.HK>, tumbled 11.3 percent after the global freight index dropped sharply. The Baltic Dry Index <.BADI> fell 7.3 percent on Thursday due to slowing global demand for commodities.

Bourse operator Hong Kong Exchanges & Clearing <0388.HK> was the only stock to rise among a sea of red tickers on the main index, finishing the morning up 0.8 percent. Asia’s top listed exchange operator told Reuters on Thursday it had no plan to toughen up rules on short-selling, which bourses in the United States, Europe and Asia have introduced to curb the controversial practice. [ID:nHKG191797]

HKEx is also in initial talks with Basic Element over listing the Russian industrial powerhouse’s units and hopes to soon host the first IPO by a non-Asian firm in the city to broaden its global appeal.

The securities regulator said yesterday it will continue to control new share issues to balance supply and demand in the capital market.

“Over the past eight months, the pace of new share issues has slowed,” an anonymous official from the China Securities Regulatory Commission (CSRC) said.

There were 73 new mainland listings by the end of August, the official said. In the first half, 59 companies went public at a rate of about 10 initial public offerings per month. That number fell to nine in July and five in August.

On Monday, the CSRC approved China Merchants Securities’ plan to issue 358.5 million shares.

“(But) it’s still too early to say when the IPO will be, as there are still a lot of procedures and requirements to get through,” the official said.

Everbright Securities Co is in the same boat.

The securities regulator has kept another 30 companies waiting as it tries to control the pace of new share issues on the market.

The regulator is planning to release new inquiry system rules to guide the pricing of new shares.

“The current inquiry system gives new shares a market-oriented price, but some market players could flout the rules. The CSRC will strengthen supervision and punishment,” the official said.

(China Daily September 10, 2008)