Sovereign Wealth Fund Weekly News Roundup — China Crisis

August 28, 2015 by Loch Adamson

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China’s stock market crash hit sovereign wealth funds’ balance sheets this week — although that hasn’t dissuaded them from pursuing big deals in East Asia. Norway’s SWF is targeting a Singapore office tower. Temasek and GIC vie for Tesco’s South Korean Unit. 

Black Monday

The Chinese press dubbed it "Black Monday." On August 24, the Shanghai Composite Index fell 8.5 percent, its biggest one-day drop since 2007. Shockwaves rippled across global markets as investors fretted over Beijing’s ability to handle the market crisis.

Over the past few months, the Chinese government had instructed state-owned entities — such as Central Huijin, the domestic investment unit of the $747 billion China Investment Corp. — to support the market by buying up Chinese shares, but now lawmakers seem to have conceded that such intervention is futile. In a blog post published on Monday, Central Huijin Vice Chairman Li Jiange wrote that "the issues of the market should be handled by the market itself."

For now, China's ongoing market turmoil is likely to encourage its government funds to invest their capital in perceived safe havens, such as British infrastructure. The U.K. has proved particularly attractive to CIC and the $600 billion State Administration of Foreign Exchange because of its stable regulatory environment and pressing need for foreign capital to finance infrastructure projects.

Heavy Losses

Beyond China, sovereign wealth funds’ balance sheets have been affected by the Shanghai slump. Yngve Slyngstad, CEO of Norges Bank Investment Management, the arm of the central bank that manages Norway’s $870 billion sovereign wealth fund, Government Pension Fund Global, admitted that the fund’s investments had lost 5 percent of their value over the past month thanks to the Chinese rout. Singapore’s $194 billion Temasek Holdings and the $53 billion Alaska Permanent Fund Corp., which also have large exposures to China, are likely to have sustained heavy losses, too.

However, fluctuations in Chinese equities are unlikely to worry these investors unduly — sovereign funds invest over decades, and NBIM and Temasek have expressed confidence in China’s longer-term prospects. Neither do they appear concerned about potential spillover effects across the region; both funds were reportedly pursuing big-money deals in East Asia this week.

East Asia Deals

NBIM, for instance, is reportedly bidding for Asia Square Tower 1, an office building in Singapore’s business district. The current owner, New York-based asset manager BlackRock Investment Management, put the building up for sale at the beginning of the year. The property has also attracted interest from Singaporean real estate firms CapitaLand and Keppel Land, both of which are portfolio companies part-owned by Temasek.

Temasek and its Singaporean peer, the $343 billion sovereign wealth fund GIC, have submitted rival bids for Seoul-based Homeplus, the South Korean unit of British supermarket giant Tesco. Temasek has formed a consortium with South Korea's National Pension Service and Seoul-based private equity firm MBK Partners, while GIC has teamed up with its regular deal partner, Washington D.C.-based Carlyle Group. According to media reports, Tesco is keen to close the deal as quickly as possible and is seeking to raise around 6 trillion won ($5 billion) from the sale.

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