Chinese Premier signs trade agreements while visiting UAE plus China gives loan to save India

Chinese Premier Mr Wen Jiabao in Dubai, near Armani Hotel, Burj Khalifa on Jan 17 2012

The most interesting thing happened during a lunch meeting when I bumped into Chinese Premier - Wen Jiabao - in Dubai on Tuesday Jan 17, 2012 near Armani Hotel, Burj Khalifa and indeed said hello to him! 

I consider him to be the MOST powerful man in the world today, even more than US President Obama!

Picture of the Chinese Premier attached while visiting Saudi, Abu Dhabi and Dubai.....

......in search of oil to replace Iranian oil in the event US-Iran crisis escalates any further, since China imports almost 25% of Iranian oil amounting to 500,000 barrels per day from the 2m barrels produced by Iran daily!

Although, I am betting that US is backing off....

1) considering that they have delayed their military exercise with Israel this week in the Gulf due to 'budgetary constraints' until further notice AND 

2) they have given 6 months to everyone while sanctioning Iranian Central Bank for oil export embargo which clearly is a sign of weakness. I mean if you wish to sentence somebody you have to do it immediately and not AFTER 6 months!

3) Plus USA is very worried that Iranian sphere of influence is strengthening in Latin America (USA's traditional backyard which until recently was under USA's thumb) since Iranian President visits Venezuela, Cuba, Ecuador and Nicaragua every year and is building stronger ties in the region and enhancing trade while gaining international strength and support since Iran is the only country defying USA openly - despite all the sanctions and he is received extremely warmly in these 4 countries!

4) China and Russia have announced that they will veto any UN resolutions against Iran. While China and Russia have doing more business between each other, but they are tacitly supportive of Iran since they supply major arms and aircrafts to Iran and purchase oil from Iran. For example, China buys more than 25% of Iran's oil.

Meanwhile.....China also saves India!

This is a very good news for India's USD denominated convertible bonds issued by hundreds of corporate issuers, 400 approx, to be more precise, that China has supported Reliance Communication, owned by Indian billionaire, Anil Ambani and provided his company a loan of USD 1.18bn at 5% for 7 years through 3 major Chinese banks.

I was very worried that this USD 1.5bn repayment coming due on Mar 1 2012 may default since this is the LARGEST bond repayment in USD by ANY Corporate issuer from India. Everyone in the institutional category was focused on this maturity being one of the largest corporate houses in India with the largest single bond size in India.

This convertible (FCCB) bond was issued by Reliance Communications during the peak of India in 2007 for 5 years at INR 44.11 (todays INR/USD rate is at INR 51.00, hence a loss of 15.62% plus 27% interest for a total increase of approx 42.62% from a sum of USD 925,300,000 outstanding, approx USD 1bn, hence a payment amount of approx. USD 1.42bn was required on Mar 1, 2012).

With conversion price established at INR 661.23 at issue time in 2007, todays price is at INR 89, which indicates very strongly, that no investor would convert into equity, hence the zero coupon bond issued at USD 100.00 shall redeem at USD 127.69 almost mandatorily, except for a default, which has now been averted. Bond trades at USD 123 level today (since maturity on 1 Mar is at USD 127.69 and has increased steadily from USD 115 levels in Oct.

It is with a huge sigh of relief, that we all rejoice that there is ONE backstop to this world's debt problems called CHINA!

Thank God for China, else, I wonder what would, Europe, Japan, Australia, India, Middle East, Africa and Latin America and of course USA, do!!.... Chuckle..chuckle... but hey, China also has to save itself so that makes it the saviour of the ENTIRE world!

And some people doubt that China will not rise but may collapse...though the facts state that it continues to help almost every single country around the world! 

Question is: How could China fail, if it is still helping others with billions of dollars?

The facts are that USA's Secretary of Treasury, was in China last week, probably on a quarterly trip since last few years.

The Spanish and Brazilian Presidents were in China in Apr 2011.

The VP of USA, Joe Biden, visited China in Aug 2011.

The President of France and Romania were in China in Aug 2011.

The President of Pakistan was in China in Aug 2011.

The Sri Lankan PM visited China in Sep 2011.

Chinese PM visited India in Dec 2010 while Indian PM visited China in April 2011 to attend a BRICS meeting.

UK PM David Cameron visited in Nov 2010 and Chinese PM visited UK, Germany and Hungary in Jun 2011.

The Head of EFSF Fund from Europe was in China in Oct 2011.

While Russian President, Putin visited China in Oct 2011 to sign some gas deals.

Japanese PM was in China on 25 Dec 2011 to sign CNY-JPY agreements to avoid USD trade.

As of today, the S. Korean President has just landed in China for a visit. The North Koreans have visited twice after many years in 2011 due to change of leadership and the death of the erstwhile N. Korean President.

And the Canadian PM, Stephen Harper is expected to visit China in Feb 2012.

While guess where the Chinese PM is on Jan 17, 2012..... in UAE, visiting Saudi and UAE!

Stay tuned...

Billionaire Anil Ambani’s Reliance Taps Chinese Loans After Stock Plunge
By Anurag Joshi and Mehul Srivastava - Jan 18, 2012 10:29 AM GMT+0400

Well Said....

Bankers and Advisors, especially from the 'Swiss Private Banks' and top fund managers who are being diligently followed by bankers and advisors in most other countries worldwide have sold the story of 'managing assets' to clients without actually contributing to the growth of money of their clients and devoured the fees and enriched themselves which has led to mistrust of advisors and bankers, not to mention decline in assets and hence the fees. This has led to many a top private banks to fail (think ING, Lehman) and several hedge funds to collapse and cases like Madoff and MF Global to surface. Wish they would keep client's interest at heart, at least going forward.

Dilbert says it beautifully...

New Bond Issue - Hutchison Whampoa 5yrs & 10 yrs - USD

Hutchinson Whampoa is a great company involved in following businesses, as a conglomerate. It also meets my criteria of cash in this turbulent time, of having USD 13bn cash on their balance sheet.

1. Infrastructure & Energy - Involved in Power and Utility in HK, China and UK, Largest energy integrated producer in Canada - over USD 50bn market cap in this sector
2. Property - Largest in HK and China, Rental Portfolio 14.4m sq Ft.
3. Retail - Globally with over 9,400 stores across Asia and Europe
4. Telecom - Leading telecom operator with base of 60m customers in 11 countries
5. Ports - World's largest private port operator with 52 ports in 26 countries

ISSUER:            Hutchison Whampoa International (11) Limited
GUARANTOR:          Hutchison Whampoa Limited
FORMAT:            Reg S / 144A
STATUS:            Senior unsecured
RATINGS:            A3 (Moody's) / A- (S&P) / A- (Fitch)
ISSUE SIZE:        US$ Benchmark
TENOR:              5-Year            |        10-Year
SPRD GUIDANCE:      T+ 275 Area      |        T+275 Area
TERMS:              SGX Listing, 200k/1k denoms, NY Law
EXP TIMING:        Today's business
JOINT BOOKS:        Goldman Sachs, HSBC, JP Morgan

Despite market uncertainities, their revenues grew 25% over 2010 (9 month period) in 2011.

While EBITDA growth was 37% for the same nine month period in 2011 versus 2010.

Please note this issue has a minimum denomination of USD 200,000 and USD 1,000 thereafter.

Indicative coupon for 5 year is at 3.60% p.a.
Indicative Coupon for 10 years is at 4.75% p.a.

Comparables:

Hutchinson Whampoa, Issued Sept 2009, maturing Sept 2015 (5 yrs maturity), Coupon 4.625%, trading today at USD 105.50

Hutchinson Whampoa, Issued Sept 2009, maturing Sept 2019 (10 years maturity), Coupon 5.75%, trading today at USD 110.85

Hutchinson Whampoa, Issued Apr 2009, maturing Apr 2019 (10 years maturity), Coupon 7.875%, trading today at USD 122.00

Hutchinson Whampoa, Issued Nov 2003, maturing Jan 2014 (10 years maturity), Coupon 6.25%, trading today at USD 108.00

Hutchinson Whampoa, Issued Feb 2003, maturing Feb 2013 (10 years maturity), Coupon 6.50%, trading today at USD 105.00

They also have a Perpetual security issued in Oct 2010, which perhaps is the only Perpetual security in the world which is currently trading at just slightly above USD 100 levels.

So, if you have any safe money to park in USD, I would suggest to carefully consider this issue and invest.

This is a safe and solid company with excellent track record over last several decades, owned by Mr Li Ka Shing from HK, who invests during turbulent times and his businesses are in very resilient industries and sectors and are globally diversified. And, the bond is being guaranteed by the parent company directly.

I expect rise in bond value as credit risk diminishes, even though US yields may end up rising a bit, from current 2% level for 10 year US Treasuries.

In order to invest in this new issue, you need to hurry today itself over the next few hours, by 2-3pm Dubai time today, before the new issue window closes today and the bond starts trading from tomorrow onwards.

The Story of RBS and its impact on Dubai...

In one of the biggest job losses in Europe in 2011/12, RBS is set to announce over 10,000 job cuts for RBS bankers this week.

RBS is a storied company with very interesting history over the past 5 years. It was founded in 1767 by a Royal Charter. In 2005, the Queen and the Duke of Edinburgh opened the new HQ building of RBS in Edinburgh.

It must be noted that RBS is one of the largest banks in the WORLD with revenues of GBP 31.8 bn in 2009 and GBP 29.6bn in 2010.

The then Chairman, Sir Fred Goodwin was a very aggressive banker and set out to create his legacy during the boom times. He went on an acquisition spree to make RBS the biggest bank in perhaps the whole world!

They also took a 10% stake in Bank of China in 2005.

His crowning moment was in 2007 when RBS, along with Fortis (Belgium) and Santander (Spain) took over ABN AMRO Bank for a staggering USD 100bn, the largest banking takeover in the history of banking.

We all know how that ended...but just to recapture those memories.....

ABN AMRO Bank could not be digested by all 3 top banks since global crisis started unfolding....

Fortis went bankrupt and Belgian Govt had to bail them out.

Santander, went through trouble but due to its takeover being only in Latin America, was able to manage it somehow, due to Santander's market strengths in that region. But the Spanish downturn of 2011, submerged their stock from EUR 12 in 2009 to EUR 5.65 today (52.9% down).

Meanwhile, RBS kept going under.....gradually, purely due to its systemic importance to the UK banking system.

In 2008, UK Govt bailed them out and took over 58% stake in the bank.

In 2009, the UK Govt gave more money to bail the bank, and took the stake upto 68%.

Finally, in 2010, UK Govt gave them more money and stands currently with a 84% stake in RBS Bank.

The UK Govt is going silly trying to close the various risky and unprofitable businesses but the 2009/2010 slight recovery delayed the inevitable.

Now, RBS is firing bankers like never before, thanks to the 2011 European crisis, which continues to get worse, with EUR declining and loan losses rising, unemployment rising and inflation rising due to oil prices and other factors.

They only had a GBP 3.6bn loss in 2009 and GBP 1.1bn loss in 2010. 2011 results are still awaited. I am sure they are equally bad, hence the job cuts.

Since April 2008, when RBS issued a GBP 12bn rights issue, their stock has been decimated.

From a peak of GBP 6.0263 in March 2007, it trades at GBP 0.2078 today, a loss of 96.55%. Just last one year, from Jan 11 to Jan 12, it has lost 47%.

Only in the month of Oct 2008, when the UK Govt took the 58% stake in RBS and 2 other major banks and injected a total of GBP 37bn in 3 banks, the RBS stock price plumetted from GBP 1.86 to GBP 0.6750 in ONE MONTH.

Some of the major names in UK, owned by RBS today, due to its acquisition spree are as follows:

National Westminster Bank
Royal Bank of Scotland
Adam and Company
Child & Co
Drummonds Bank
Coutts & Co
Ulster Bank
RBS Coutts
RBS International

Under the RBS Insurance brand, RBS owns multiple brands and is the No. 1 motor insurer in the UK:

Churchill Insurance
Direct Line and Direct Line for Business
Devitt Insurance
Green Flag
NIG
Privilege
UKI Partnerships which underwrites the: Churchill, Direct Line, Tesco Bank, 
Egg, Mint, Mini, BMW, Peugeot, Suzuki, Vauxhall, Lloyds TSB, MBNA, NatWest,
Pearl, Prudential, Royal Bank of Scotland and Ulster Bank insurance brands.
and
Tracker, the UK's number one supplier of vehicle tracking services.

While down in Dubai, the impact of UK banks in trouble seems like an endless string of departures from the business as well as the city of Dubai. UAE happens to be one of the major contributing countries to RBS balance sheet and profits, partly due to the ABN AMRO acquisition.

ABN AMRO left Dubai in 2008 due to its acquisition by RBS. ABN's Private Banking arm continues to operate in DIFC on a standalone basis which is now 100% owned by the Dutch Govt.

Then, RBS decided to leave Dubai, and was acquired by ADCB in 2010. However, RBS Coutts, the Private Banking arm continues separately and they keep on refocusing their businesses ever since they arrived in Dubai in 1999.

Finally, Lloyds Bank in Dubai is now up for sale with news out in the market today and probably ADCB will take them over too.

EFG International, a Swiss Private Bank also shut shop prior to Dec 31 and will finally depart within the next few months from Dubai.

Fortis Bank from Belgium also shut shop in Dubai in 2009 and were acquired by their staff as a Management Buy Out, MBO and renamed.

I would not like to add here about Lehman closing in Sept 2008 and being bought over by Nomura nor I would like to say here that Merrill Lynch was merged with Bank of America in 2008....But I said it, nonetheless!

Nor would I tell you that Clariden Leu was merged with Credit Suisse in 2011 or that Rabo Bank sold Sarasin Bank in Dec 2011! Or that ING went bankrupt and was purchased by OCBC as Bank of Singapore in 2009.

Unfortunately, this global financial crisis has affected European banks a lot (even more than the US banks) and they continue to withdraw from businesses worldwide. Except for Lehman and Merrill Lynch from USA, all others mentioned above are European banks.

In fact, banks from most countries outside of Europe continue to do well.

However, we are still not at a stage where I would recommend to buy stocks or bonds of ANY Financials worldwide at this point of time.

RBS Faces Nuclear Winter as CEO Dismantles Goodwin's Bank
2012-01-10 08:40 GMT
Source: Bloomberg

By Liam Vaughan and Howard Mustoe
    

Performance of 2011 and Future Outlook

Happy New Year and best wishes for all success and safer investment opportunities going forward!

I would like to share two websites if you wish to deal in physical gold/silver which are a good resource for comparing prices across gold and silver brokers:

www.comparegoldprices.com
www.comparesilverprices.com

Let's analyse a few investment opportunities, both on profit making and loss making sides for the year gone by:

Bonds were the best asset class aside from gold while all other asset classes such as real estate and stocks tumbled across countries and some individual stocks hit rock bottom.

Let's start with the good ones...

1.
Gold closed last Dec 2010 at USD 1,420.
Gold closed Dec 2011 at USD 1,566
A solid gain of 10.28%

If you sold it around USD 1,800 or USD 1,900 levels in Aug/Sept, the gain would have locked in, but this continues to be one of the best ideas even going forward. Gold when compared to stocks or bonds over the last 11 years since Jan 2000 shows a rise of 556% until Dec 2011 while S&P 500 shows 87% and Emerging Markets EAFE (Europe, Australia and Far East) Index shows only 84% OVER 11 years. This shows Gold has outperformed every single asset class over the past 11 years AROUND THE WORLD. Please see attached chart.

One thing, I would like to say here is that unlike stocks, bonds, funds, ETF's, fixed deposits (GIC's for the Canadians), real estate etc, gold and silver 'assets' besides diamonds, art, wine etc that are not taxable if purchased in physical form and sold anywhere in the world. There is no accounting for physical gold when you buy or sell anywhere i.e. no capital gains taxes etc. Wealth taxes may apply in US or India etc but can be protected.

This is the 'trick' many seriously rich investors have used over centuries to protect and grow their wealth.

This is one more reason why gold will not fall and has been my profitable idea for quite some time now.

2.
My most favourite bond from Govt of Singapore AAA rated.

This bond closed Dec 2010 at USD 102.50 with yield of 3.95%
Now, Dec 2011, Temasek bond 2019 closed at USD 110.

So, a gain of USD 7.50% plus interest of 3.95% for a solid gain of USD 11.45%!

This bond could have been sold at USD 111 levels as well couple of times in between or loan/overdraft taken against it to create liquidity.

This bond compares to US Treasury 10 year whose yield declined from 3.29% yield to 1.87% p.a. but the US Treasury bond price rose only from USD 94 to USD 107 over 1 year, and gave a return of 13% gain plus 3.29% interest for a net yield of 16.29%, however, it was a very impossible task to predict this last year, with all the uncertainty surrounding America and its banks etc.

That's because, no one in the world could have predicted the Japan earthquake in March, Arab Spring from Feb 2011 onwards or the catastrophic Greek/Spanish problems due to which USD became stronge - despite being weak - purely because it is the world's sole reserve currency and has some safe haven status still left.

In reality, while investing from here in Asia and Middle East, Temasek is the only bond which is a real AAA, at least it was, all through this last year and I believe it will, despite oncoming issues in Singapore per se (lower GDP, slow trade, weakening real estate etc) but Temasek is a stand alone cash rich financial company holding over USD 1 trillion if not more in assets. Temasek is exiting major stake in a Pakistani bank NIB and booking losses due to UBS investment etc.

This was the best bond out there through 2011 and almost nothing compares to it and you will know that I have been a strong believer in this bond for two years now due to its inherent strengths.

If you know of any bond, whose price went up 7.5% or even 5% in USD, I would like to hear from you and find out more about the company.

I do know Taqa Abu Dhabi 2017 bonds rose during 2011, due to their safe haven status by about 3% and Mubadala 2016 as well by 2%. But, this was due to the unprecedented Arab Spring events where Abu Dhabi when compared to Egypt and Bahrain etc shows strength in 2011, more so than it did in 2010.

This idea of mine has paid rich dividends even during the world's worst crisis and not only safeguarded the wealth but grew it above inflation and when compared to other assets, was a superb and an outstanding performer!!

3.
AUD
It was at 1.02 level last year and finished 2011 also at 1.02.

Which means the return on currency appreciation was zero!

However, of course, like astute investors, we booked gains of 4-5% and more, at least twice during the year, by buying AUD each time it dipped below 1.00 and selling when it went to 1.03 or 1.10 levels.

However, last year this currency gave 6% in fixed deposits and 5% in bonds and still does as on date.

I would really not like to compare this zero performance with any other currency, but since you ask...

GBP started at 1.56, ended at 1.55, loss of 0.5%.
EUR started at 1.33 and ended at 1.29, loss of 3%.
BRL started at 1.66 and finished at 1.86, loss of 12%.
INR started at 44.70 and finished at 53.06, loss of 18.70%!

Except for JPY and CNY, all other currencies had a loss, some of them very significantly.

Even high interest rates in Brazil and India could not protect the downfall of the currency.

Hence, in USD terms, all investors who invested in Brazil and India or many other places lost money in simple fixed deposits as well. We cannot compare investors who invested in bonds and stocks because India, for example, had the distinction of being the worst performing market globally in 2011 and all USD bonds have losses of 5-10% while stock market declined over 25% .

AUD, again, has been one of my most profitable ideas for over 2 years due to its basic strength and its strong correlation with China and supplier of 37% of world's coal exports and substantial metals.

4.
S&P 500 was a good place to invest last year. It comprises 500 of the world's and America's largest companies. It gave a loss of 0.003% all through the year despite a 30% volatility between 1,099 to 1,363 points. It started at 1,257.64 and also closed at 1,257.60

I had said this last year that US economy will go down but its stock markets will rise and both will disconnect. This theory of mine has been now verified and did extremely well and the facts point to the same. At least, it did not lose money, when compared to most other countries worldwide in 2011 and same will continue going forward.

Now, on to the bad ones...

1. Most investors talked about Citibank shares, at least until last year. Citi was reverse split in May 2011 so price could rise from USD 4.50 to USD 45 level.

I was asked by many for my views to buy again and I have been negative on banking sector especially in Europe and USA for almost 2 years or perhaps even longer.

Citigroup shares started the year at a phenomenal price of USD 47.30 and closed at an even more phenomenal price of USD 26.31 for a loss of 44.3% over the full 2011.

Same was case for all banks in US and Europe. JP Morgan tumbled 23.3%, Bank of America tumbled 60.8% and the mighty Goldman too tumbled 47.75%.

BNP lost 37.4%, UBS lost 28.2% while Deutsche lost 24.8%. This is without accounting for any EUR currency losses if you earn and save in USD.

2.
Greece and Italian Govt bonds and all European bonds declined significantly.

Greek 2019 bond declined from EUR 70 to EUR 34 today, so you would have lost 51% while earning 10.75% return for a net loss of 40.25%.

Italian Govt 2020 bond declined from EUR 100 to EUR 82 today while earning 4.45% p.a. leading to an effective simple loss of 13.55%.

If you were 'lucky' to hold a fixed bond of RBS, one of the world's largest banks in Europe, from UK, it declined from EUR 95 to EUR 80 levels while earning 7% pa for a net loss of 8%.

Most other European bank bonds were same, with losses between 5-15%.

If you bought Perpetuals of European banks, then no one could have helped you.

Credit Agricole bank (one of the Top 3 in France) whose Perpetual declined from USD 105 to USD 87 today for a loss of USD 18% while earning 9.75% p.a. for a loss of 8.25%.

One of the classic cases was Perpetuals of HSH Nordbank, a German bank, which WAS one of the banks who used to finance shipping around the world. Its perpetual declined from USD 40 to USD 21 with a coupon of 7.25%, if they paid that. Loss being 11.25%. Imagine, in end 2008, this was at USD 95 levels and declined to USD 30 levels stayed there until 2011 when it went to USD 60 levels in Apr 2011 and then went down to USD 21 today. Of course, this bank has filed for bankruptcy and their CEO and others sued for 'accounting mistakes'.

3.
We have covered currencies like Turkish Lira, South African Rand, Indian Rupee, Brazilian Real, Malaysian Ringitt, EUR etc which incurred substantial losses for holders of those currencies.

These currencies shall continue to decline as not only the USD provides a safe haven status but US economy is showing signs of recovery over 2012 and 2013 and will be the first one to recover due to its geo political strategy (think Iran, Libya, Egypt etc) and when compared to China, India, Europe, it will certainly do better.....

Stay tuned....and have a Fantastic 2012!

Bonds Prove Best Financial Asset for 1st Time Since at Least ‘97
By Cordell Eddings- Bloomberg