Watchdog barks at big bids
Tan Wei

ON MARCH 5, shareholders of Ping An Insurance (Group) Co. of China Ltd. (Ping An) passed a refinancing plan of 120 billion yuan ($17 billion) at its first interim meeting of the year with an overwhelming 92 percent in favor. A month before, Ping An’s plan, which had not been submitted to the China Securities Regulatory Commission (CSRC), triggered the first stock market tumble of 2008.
Ping An’s actions were the tip of the iceberg as far as refinancing plans of listed companies go. The CSRC’s public figures show that 23 listed companies released refinancing plans totaling 204.3 billion yuan ($28.77 billion) after Ping An dropped its bombshell. Though each of these individual refinancing plans were comparatively smaller than Ping An’s, their frequent announcements have pressured capital supply in the market and tested the patience of investors. Statistics from TX Investment Consulting Co. Ltd. show that by February 29, 53 listed companies had refinancing plans passed by their boards of directors. These financing methods include reissuing A shares and convertible bonds, or offering rights. However, none of the refinancing plans have been approved by the CSRC, demonstrating CSRC’s strict attitude towards the refinancing wave.
“Before listed companies issue their refinancing proposals, they must take the market situation and their own needs into full consideration,” said Shang Fulin, Chairman of the CSRC. “They must prudently factor in the scale and timing of their refinancing plans, and take the capability of investors into consideration.” Shang noted that Ping An’s refinancing plan was still in the process of the company’s internal procedures and that it had not yet applied for refinancing with the supervisory department. The CSRC has pledged to check Ping An’s financing plan carefully according to the law after it is submitted. The CSRC also urges listed companies to improve information disclosure.
When mentioning the recent refinancing plans or motions of some listed companies, CSRC stated it would carry out approval procedure strictly. The actions by the CSRC are meant to send a positive signal to investors and show that they are not standing on the sidelines with folded arms. Market nightmares It was hard for people to imagine how refinancing plans could have such a powerful impact on the stock market. In 2007, investors defied frequent interest rate hikes of the central bank. But large-scale refinancing plans have infuriated investors and shaken the foundations of the bull market. On January 21, when Ping An’s refinancing plans were made known, its share price plummeted and lost 20 percent of its value in 10 trading days. Dragged down by Ping An’s performance, the benchmark Shanghai Composite Index in the mainland stock market plunged to 4320.77 from 5188.79 points during those 10 days.
On February 20, a month after Ping An’s disclosure, rumors circulated that Shanghai Pudong Development Bank (SPDB) intended to raise 40 billion yuan ($5.6 billion) through its refinancing. Angry investors pulled SPDB’s share price down by 10 percent on the same day, hitting the lower limit—-the first such occurrence of its kind in seven years for SPDB. The benchmark index dropped 2.09 percent that day. SPDB admitted its plan on the next day, claiming that it was “researching the possibility of issuing shares to raise money to supplement the bank’s core capital.” On the same day, SPDB’s share price fell another 5.98 percent, dragging down the share prices of all listed banks.
On February 21, rumor-mongers claimed that Sinopec Corp. intended to raise 60 billion yuan ($8.45 billion), causing a 12-percent drop of Sinopec share price in three days. Sinopec later denied the rumors. China Unicom Ltd. and China Life Insurance Co. Ltd. were also involved in refinancing rumors. Investors rushed to sell China Unicom’s shares and its share price dropped 10 percent on the same day the rumor came out. But the company also denied the refinancing plan. China Life’s spokesman Liu Yan’an reminded investors that they should not believe rumors blindly.
Just like that, “refinancing” became the plague sweeping across the Chinese capital market. Any company influenced by this plague experienced sharp price drops, creating turbulence throughout the entire stock market. Cheng Weiqing, analyst with CITIC Securities, said that the current shortage of capital supply in the stock market was one of the reasons behind the stock market plunge. Estimates are that since January, some 38 listed companies had raised refinancing motions, and these might need 230 billion yuan ($32.4 billion). Red chips (mainland companies listed in Hong Kong) are also expected to issue shares in the mainland A share market in the first half of this year. In March, over 600 billion yuan ($84.5 billion) worth of non-tradable shares will be made tradable. Although a number of new mutual funds have been approved, they are not large enough to boost investor confidence.
A blessing or curse? At present, both the investors and the media are criticizing the large refinancing plans of listed companies. Shi Hanbing, commentator of Shanghai Securities News said these companies were “gambling with investors’ lifesavings.” However, in the eyes of Xu Guangxun, Chief Representative of NASDAQ in China, as long as the investors agreed, the listed companies can acquire abundant capital from the stock market. Xu said, “In NASDAQ, the quantity of refinancing has already surpassed the overall initial public offering (IPO) of the listed companies.”
Li Kang, researcher with Everbright Securities, claimed that the refinancing plans could result in totally different effects under a different market background. As a matter of fact, refinancing was once considered a recipe for reviving the gloomy stock market. After the adoption of Administrative Measures for the Issuance of Securities by Listed Companies in May 2006, the re-issuance of shares has become a favorable refinancing method for listed companies. In 2006, there were a total of 63 refinancing cases in the A-share market, raising a total of 107.28 billion yuan ($15.11 billion). As of December 11 last year, there were 157 cases of re-issuing shares in the A-share market, collecting 272.3 billion yuan ($38.35 billion) in all. In addition, another 242 listed companies announced refinancing plans. These events have occurred during the most bullish market ever in Chinese stock market history.
“In a bullish market, it is easy for investors to accept all kinds of financing programs,” Xu said. “However, the current stock market is faced with serious shortage of capital and has shown signs of turning bearish. The large-scale refinancing program puts heavy mental pressure on investors and scares them away. This in turn drags down the market indexes.” In the capital market, financing plans can only be successful if investors welcome them. As for investors, refinancing means putting more money into the market, and they want that done in a bull market. Moreover, the price of the new shares must be lower than the currently tradable shares if the companies want to attract investors.
In 2008, the crazy bull market no longer exists and market readjustment has become a mainstream. Under such circumstances, investors cannot see the benefit of such large-scale refinancing. Furthermore, the weak market and shortage of capital have reduced investor confidence.
Tang Shuangning, Chairman of China Everbright Bank and former vice chairman of the China Banking Regulatory Commission, pointed out that the stock market is not a “cashier,” and refinancing must have its limits. “China has strict approval procedures for IPOs, but refinancing approval procedures are not as strict,” Tang admitted. “In recent years, refinancing events were mistreated as big, good news. Actually, this was manipulated by institutional investors.”
Tang believes refinancing must be beneficial to both listed companies and investors, as well as to the healthy development of the stock market. “Otherwise, some listed companies might deliberately issue new shares to acquire large sums of money,” said Tang. In the end, Tang said that listed companies must ask not what the market can do for them, but what they can do for the market.

(The Daily Mail-Beijing Review Articles Exchange Item)

Real crisis is global hunger, not credit crunch
George Monbiot

NEVER mind the economic crisis. Focus for a moment on a more urgent threat: the great food recession that is sweeping the world faster than the credit crunch. You have probably seen the figures by now: the price of rice has risen by three-quarters over the past year, that of wheat by 130 percent. There are food crises in 37 countries. One hundred million people, according to the World Bank, could be pushed into deeper poverty by the high prices. But I bet that you have missed the most telling statistic. At 2.1billion tons, the global grain harvest broke all records last year — it beat the previous year’s by almost 5 percent. The crisis, in other words, has begun before world food supplies are hit by climate change. If hunger can strike now, what will happen if harvests decline?
There is plenty of food. It is just not reaching human stomachs. Of the 2.13 billion tons likely to be consumed this year, only 1.01billion, according to the United Nation’s Food and Agriculture Organization, will feed people. I am sorely tempted to write another column about biofuels. From this morning all sellers of transport fuel in the United Kingdom will be obliged to mix it with ethanol or biodiesel made from crops. The World Bank points out that “the grain required to fill the tank of a sports utility vehicle with ethanol ... could feed one person for a year”. This year global stockpiles of cereals will decline by around 53 million tons; this gives you a rough idea of the size of the hunger gap. The production of biofuels will consume almost 100 million tons, which suggests that they are directly responsible for the current crisis. Monday Ruth Kelly, the secretary of state for transport, promised that “if we need to adjust policy in the light of new evidence, we will”. What new evidence does she require? In the midst of a global humanitarian crisis, we have just become legally obliged to use food as fuel. It is a crime against humanity, in which every driver in this country has been forced to participate.
But I have been saying this for four years, and I am boring myself. Of course we must demand that our governments scrap the rules that turn grain into the fastest food of all. But there is a bigger reason for global hunger, which is attracting less attention only because it has been there for longer. While 100 million tons of food will be diverted this year to feed cars, 760 million tons will be snatched from the mouths of humans to feed animals — which could cover the global food deficit 14 times. If you care about hunger, eat less meat. While meat consumption is booming in Asia and Latin America, in the UK it has scarcely changed since the government started gathering data in 1974. At just over 1kg per person per week, it’s still about 40 percent above the global average, though less than half the amount consumed in the United States. We eat less beef and more chicken than we did 30 years ago, which means a smaller total impact. Beef cattle eat about 8kg of grain or meal for every kilogram of flesh they produce; a kilogram of chicken needs just 2kg of feed. Even so, our consumption rate is plainly unsustainable.
In his magazine The Land, Simon Fairlie has updated the figures produced 30 years ago in Kenneth Mellanby’s book Can Britain Feed Itself? Fairlie found that a vegan diet produced by means of conventional agriculture would require only 3 million hectares of arable land (around half Britain’s current total). Even if we reduced our consumption of meat by half, a mixed farming system would need 4.4 million hectares of arable fields and 6.4 million hectares of pasture. What level of meat-eating would be sustainable? One approach is to work out how great a cut would be needed to accommodate the growth in human numbers. The UN expects the population to rise to 9 billion by 2050. These extra people will require another 325 million tons of grain. Let us pretend that improvements in plant breeding can keep pace with the deficits caused by climate change. We would need to find an extra 225 million tons of grain. This leaves 531million tons for livestock production, which suggests a sustainable consumption level for meat and milk some 30 percent below the current world rate. This means 420 gram of meat per person per week, or about 40 percent of the UK’s average consumption.
This estimate is complicated by several factors. If we eat less meat we must eat more plant protein, which means taking more land away from animals. On the other hand, some livestock is raised on pasture, so it doesn’t contribute to the grain deficit. Simon Fairlie estimates that if animals were kept only on land that is unsuitable for arable farming, and given scraps and waste from food processing, the world could produce between a third and two-thirds of its current milk and meat supply. But this system then runs into a different problem. The Food and Agriculture Organization calculates that animal keeping is responsible for 18 percent of greenhouse gas emissions. The environmental impacts are especially grave in places where livestock graze freely. The only reasonable answer to the question of how much meat we should eat is as little as possible. Let’s reserve it — as most societies have done until recently — for special occasions. For both environmental and humanitarian reasons, beef is out. Pigs and chickens feed more efficiently, but unless they are free range you encounter another ethical issue: the monstrous conditions in which they are kept. I would like to encourage people to start eating tilapia instead of meat. This is a freshwater fish that can be raised entirely on vegetable matter and has the best conversion efficiency — about 1.6kg of feed for 1kg of meat — of any farmed animal. Until meat can be grown in flasks, this is about as close as we are likely to come to sustainable flesh-eating.

—Arab News





Why Russian bear has reasons to be worried about Nato
M N Hebbar

A LOT of the time in politics you have people look you in the eye and tell you what’s not on their mind. He looks you in the eye and tells you what’s on his mind”, said US President Bush at the just concluded Nato summit in Bucharest. The allusion — a left-handed compliment — was to Russian president Vladimir Putin, and what was on his mind were several bones to pick with Nato , the most recent one being its planned expansion to Georgia and Ukraine. The alliance’s obsession with pulling as many as it can into the club of the West has hit a roadblock even if Russia’s creeping influence on its former satellites shaped the menacing subtext of this summit.
The summit was almost a battle of legacies. Outgoing presidents Mr. Bush and Mr. Putin stood up to each other without producing an outright collision but the worrying theme of the summit was not that the alliance was pointless but that the old tune of countering Russia was still relevant. Worse, Western Europe seems loath to do much about it. In the event, Mr. Bush lost out on his blunt call for Nato expansion to Georgia and Ukraine. Although America’s Nato allies have generally supported Mr. Bush, the sole display of resistance came from German chancellor Angela Merkel who successfully sought a delay in the induction of the two republics into the alliance. Mr. Putin, on the other hand, lost out when Nato committed itself to hosting the US defence missile systems in Poland and the Czech Republic.
The choice of the monstrous Ceausescu palace, a symbol of the notorious regime of the erstwhile communists, was a telling commentary on the ongoing mission of Nato to defend European democracy against the threat from the east. Its leaders continued on their roll despite Russia’s strong hints that a decision by the West to entertain the membership applications of Ukraine and Georgia to the Nato council would be tantamount to a declaration of cold war. Juxtapose this with what President Putin said at the Munich security conference last year: “ Nato expansion does not have any relation with ensuring security in Europe. On the contrary, it represents a serious provocation… and we have the right to ask: against whom is this expansion intended?”
The answer is blowing in the wind. Against the backdrop of Russia being the only country in Europe (or in Central Asia) that has been explicitly barred from Nato , the only possible target implied by the alliance’s “defensive” posture has to be Russia itself. Every defence policy statement from Central Europe makes clear that defence against Russia is the only raison d’etre of Nato . But if a spirit of peaceful co-operation between the West and Russia is ever to be created, the leaders will have to think much more deeply about the legitimate grievances that Nato ‘s enlargement arouses in Russia. Ever since the dismemberment of the Soviet Union in 1991, the enlargement of Nato has also seen the EU expanding on the economic front towards Russia’s western and southern borders in what may well seem like a two-pronged operation to confront Russia.

—Khaleej Times