If China National Offshore Oil Corporation (CNOOC)
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, analysts
said in Beijing Thursday.??
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 US$18.5-billion offer represents a premium for Unocal's
shareholders of about US$1.5 billion over the value of Chevron
Corporation's offer, based on its closing price on the New York
Stock Exchange (NYSE) at the time.
If CNOOC succeeds, the case will become the largest overseas
merging transaction of Chinese enterprises in history. According to
the Beijing-based China Business Times, CNOOC plans to
borrow a total of US$16 billion of loans from Chinese and foreign
financial institutions.
Some US$13 billion of loans will be provided by the Industrial
and Commercial Bank of China (ICBC) and its parent
company China Offshore Oil group, with only US$3 billion of
international commercial loans.
As China regulates its capital accounts, any overseas merging
deals of Chinese enterprises will be warranted by the State
Administration of Foreign Exchange (SAFE). So CNOOC, a typical
state-owned enterprise, must have received support from the SAFE
for the merger proposal, the paper said.
CNOOC's borrowing of huge amounts of fund in US dollars from the
Chinese side will result in the abatement of US$13 billion in
China's official foreign exchange reserve, analysts say.
In some sense this means the alleviation of current pressure
demanding for the Chinese yuan's appreciation, according to the
newspaper.
China's forex reserve surged by as much as US$206.7 billion in
2004 to US$609.9 billion by the year-end, second only to Japan,
according to SAFE figures.
The country's fast forex reserve increase has become an excuse
of some countries to demand the appreciation of the Chinese
currency. The Chinese government, however, insisted in keeping the
renminbi (RMB) exchange rate basically stable at a reasonable and
balanced level.
The rocketing of China's foreign exchange reserve was attributed
to the increasing surplus 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 based on no real trade since last year, according to
sources with SAFE.
CNOOC's planned merger with Unocal was hailed because it would
result in capital outflows of US$13 billion if it succeeds, which
will help reduced China's foreign exchange surplus.
The foreign exchange loans in enormous sums will also help
reduce the risks for Chinese financial organizations, because if
China really appreciates its currency, the outflow of US dollar
capital will reduce the losses of the Chinese side for holding US
dollar assets, experts say.
(Xinhua News Agency July 2, 2005)