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CNOOC-Unocal deal might ease
pressure on
yuan
Editor's
note: The US House of Representatives voted
overwhelmingly on Thursday to block automatic
approval of CNOOC's bid for Unocal, and approved a
nonbinding resolution calling on the Bush
administration to conduct a national security
review of the takeover. Neither action has legal
force as of yet, and would not necessarily block
consummation of CNOOC's bid even if they did, but
were considered by many experts to constitute
additional roadblocks to the deal. It has also
been widely argued that Unocal shareholders, who
are scheduled to meet August 10 to consider the
bids from CNOOC and US rival Chevron, may be
swayed toward accepting Chevron's somewhat lower
offer (which is already the course recommended by
Unocal's board of directors) if there is a
perception that the CNOOC bid would face legal
obstacles.
BEIJING - If China National
Offshore Oil Corporation (CNOOC) Ltd successfully
merges with the US oil company Unocal, the
astronomical sum of loans in US dollars used by
CNOOC will alleviate the pressure on Chinese
yuan's appreciation, observers believe.
CNOOC, China's largest offshore oil and
gas producer, announced last week that it had
proposed a merger with Unocal, offering US$67 in
cash per Unocal share. The $18.5 billion offer
represents a premium for Unocal's shareholders of
about $1.5 billion over the value of Chevron
Corporation's offer, based on Chevron's closing
price on the New York Stock Exchange (NYSE) at the
time.
If CNOOC succeeds, the case will
become the largest overseas merger transaction of
a Chinese enterprise in history. According to the
Beijing-based China Business Times, CNOOC plans to
borrow a total of $16 billion of loans from
Chinese and foreign financial institutions. Some
$13 billion of loans will be provided by the
Industrial and Commercial Bank of China and its
parent company, China Offshore Oil Group, with an
additional $3 billion of international commercial
loans. Since China regulates its capital accounts,
any overseas merger deals of Chinese enterprises
must be approved by the State Administration of
Foreign Exchange (SAFE), so CNOOC, which is a
state-owned enterprise, must have received support
from the SAFE for the merger proposal, the paper
noted.
CNOOC's borrowing of huge amounts
of US dollars from the Chinese side will result in
reduction of China's official foreign exchange
reserves by $13 billion, analysts say. This will
tend to alleviate the current upward pressure on
the yuan, which has resulted in demands for its
revaluation, according to the newspaper. China's
forex reserves surged by as much as $206.7 billion
in 2004, amounting to $609.9 billion by year-end,
second only to Japan, according to SAFE figures.
Thus far, the Chinese government has insisted in
keeping the yuan exchange rate basically stable,
although it has also indicated that a more
flexible exchange rate regime is considered
desirable in the long run.
The rocketing
of China's foreign exchange reserve has been
attributed to increasing surpluses in trade and
capital flow. Some speculative funds betting on
the yuan's appreciation, or the so-called "hot
money", have sneaked into China under capital
accounts or via illegitimate trade transactions
since last year, according to SAFE sources.
Seen in this light, CNOOC's planned merger
with Unocal has been hailed because it would
result in capital outflows of $13 billion if it
succeeds,which will help to reduce China's huge
foreign exchange surplus. The enormous foreign
exchange loans required by the deal will also help
reduce the risks for Chinese financial
organizations, because if China does appreciate
its currency, the outflow of US-dollar capital
will reduce the losses to the Chinese side that
would derive from holding US dollar assets at the
time of revaluation, experts say.
(Asia
Pulse/XIC) |
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