The bureaucrats in Beijing and the businessmen in Shanghai have been busy in recent weeks, negotiating a series of headline deals that sync into broader themes of Chinese access to global energy and commodities markets.
Bankers at Wall Street and City of London banks have spent much of the past week telling financial reporters that the impending sale of the remaining 80% of the Asian arm of French bank Credit Agricole represented an old finance industry meme: an out-of-towner overpaying for access to the premier league of global banking.
They should be so lucky.
Traditional dealmaking metrics applied by critics of the $1.3 billion deal, who claim the Chinese sovereign wealth firm proxy Citic is overpaying for Hong Kong-based brokerage business CLSA, are not the right way to see this deal, claim energy and commodity business operators in China and doing business with the still rapidly-growing economy.
Revenues, assets and book values are secondary to China’s access to commodity markets that feed its ever-swelling demand for energy and materials. At first glance, buying a bank wouldn’t seem to aid that effort – but Credit Agricole and its broker arm are traditional suppliers of financial products and liquidity to the all-important Asian commodities trade, along with many of the other European banks that specialized in the business in the run-up to the European debt crisis.
Insight into trade flows, tools for assisting and pressuring trade partners, and a research arm backed by actual trading data could prevent Chinese firms from hugely overpaying for commodities. Those benefits might not directly or immediately flow to CLSA or Citic in the way a powerpoint-armed MBA-clad VP straight off the flight from New York might require or expect to see, but in the more opaque world of transactions where qualitative rather than quantitative analysis matters just as much, clarity into often opaque markets may prove a ‘killer app’ advantage for Chinese dealmakers seeking a larger portion of the world’s resource pie.
The Citic news came only days before China’s state oil firm CNOOC said it plans to buy the Canadian oil and gas company Nexen and alongside the announcement another Chinese company – Sinopec – would buy 49% of the UK North Sea energy assets of Canada’s Talisman Energy. The $15 billion Nexen takeover would itself be China’s biggest foreign acquisition.
While the up-front price may look expensive in strict number-crunching terms for both CLSA and Nexen, China has more dollars than it can spend, many of them acquired in a rush to maintain export power rather than to reflect the incidental short-term concerns of this quarter’s marketplace.
Already, the idea that China’s CNOOC may be buying Nexen as much for its insight into commodities pricing as for its strong global asset base has been flying around the oil business in the days since the deal was announced. Running a major North Sea oil field currently owned by Nexen could potentially give the Chinese company much greater insight into the Brent market, one of the global benchmark oil contracts used to set prices for the rest of the world (along with CME Group’s benchmark West Texas Intermediate contract).
If information is the most important asset in any market, Chinese firms are going long energy information this week. The country’s long-term view of its position and its awareness of how dependent it is on global commodities markets were probably influential in all the deals announced this week, one American executive who worked on the Citic deal in China told Breaking Energy, before adding that political considerations often outweighed immediate economic questions at many Chinese businesses.