GM Said to Approach Sovereign Wealth Funds to Boost Stock Sale

Investment bankers for General Motors Co. have met with sovereign wealth funds and private investors in the Middle East and Asia to gauge interest in the automaker’s planned stock sale, said two people familiar with the meetings.

GM’s bankers had planned to approach Riyadh, Saudi Arabia- based Kingdom Holding Co., Abu Dhabi-based Mubadala Development Co., Qatar Holdings LLC and Singapore-based Temasek Holdings Pte. about GM’s initial public offering, said one of the people, who asked not to be named because the discussions are private.

Seeking large international investors is one way for the nation’s largest automaker to generate demand for its stock in preparation for an IPO next month. GM and its bankers are forging ahead with the stock offering in a year when at least 47 companies have postponed or withdrawn U.S. IPOs, two people familiar with the plan said.

“We have seen sovereign wealth funds involved with the larger international deals,” said Matt Therian, research analyst with Renaissance Capital LLC, a Greenwich, Connecticut- based research firm that has studied IPOs since 1991. “This is not a $100 million tech firm we’re talking about. This is a very large deal and it’s still a market that has pricing pressure.”

GM and the U.S. Treasury Department, which owns 61 percent of the company, aim to hold an $8 billion to $10 billion IPO in November, which is scaled back from the company’s original plan of as much as $16 billion, two people familiar with the matter said last month. The department is more interested in a high share price than a large initial sale, they said.

A GM spokeswoman, Noreen Pratscher, declined to comment.

‘Buyer’s Market’

A $10 billion share sale by GM would be the biggest U.S. IPO since Visa Inc.’s $19.7 billion raised in March 2008. The offering would be the third-largest all-time in the U.S., also trailing AT&T Wireless Group’s $10.6 billion offering in 2000.

The largest deal to be postponed this year was Liberty Mutual Agency Corp.’s proposed $1.3 billion IPO. The company delayed its offering on Sept. 29 because demand was below expectations, the insurer said. Had the deal gone through it would have been the biggest U.S. IPO so far in 2010.

“It’s very much a buyer’s market,” Therian said. “Companies have to come up with a realistic view of what they are worth. A lot of deals are being priced below their proposed range.”

While the market has been tough on some deals, Therian said that the right IPOs can still get done. IPOs in the U.S. have raised $20.95 billion so far this year, 95 percent more than the same period a year ago, data compiled by Bloomberg show.

‘Right Direction’

“It’s not where it was in mid-decade, but it’s headed in the right direction,” Therian said.

Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, raised as much as $70 billion last month in the world’s largest share sale as investors bet on its plans to double output within a decade by tapping offshore fields.

A large GM offering at a lower share price would place more pressure on the government to win higher prices in future offerings, two people said. GM and its investment banks had considered a deal worth $12 billion to $16 billion, people familiar with the plans said in August.

For the U.S. to recoup its $50 billion investment in GM, it needs to sell at an average price, before splits, of $131 a share, said a person familiar with the matter. The stock will likely be split to sell at an initial price of around $20 a share, said one person familiar with the offering.

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, put the figure at $133.78, before splits. While the U.S. bailout was paid for with TARP money, only a portion of the government’s stake will be sold in the initial offering.

Auto Holdings

Sovereign funds, which may buy stock in GM to diversify away from oil and gas investments, tend to be large, patient, investors who keep broad portfolios, three of the people said. They also don’t quibble over the price, nor do they agitate for management changes, two of the people said.

Qatar is the third-largest shareholder in Volkswagen AG with a $5.22 billion stake, according to data compiled by Bloomberg. It also owns London’s Harrods Department Store Co. Mubadala has a stake in Fiat SpA’s Ferrari SpA.

Abu Dhabi’s Aabar Investments PJSC is the largest shareholder in Daimler AG, the maker of Mercedes-Benz cars, with a 9.08 percent stake, according to data compiled by Bloomberg. Second-largest is Kuwait Investment Authority, with 6.89 percent of the Stuttgart, Germany-based automaker.

SAIC Motor Corp. Ltd. may also buy some stock in GM. The Shanghai-based automaker is one of GM’s partners in China. The Treasury Department is willing to sell the company at most 1 percent of GM, two people said.

Sales Tide

GM is still planning a November IPO, said the people. The company has not committed to a date and may delay if demand for shares were to falter.

Even in a tough market, GM’s IPO should generate plenty of interest, said David Whiston, equity analyst with Morningstar Inc., a Chicago-based investment research firm. Auto sales in the U.S. appear to have bottomed out around 11.5 million vehicles a year. Any rise in the car market bodes well for GM stock, he said.

September sales rose to an annual rate of 11.8 million, the highest since the federal “cash for clunkers” incentives ended in August 2009, according to Autodata Corp.

“If you take the thesis that selling 11.5 million vehicles is way too low, of course GM will be minting money,” Whiston said. “This is a blue-chip company. There will be tons of interest from overseas investment companies.”

Source: bloomberg.net

Petrobras Represents 80% of Brazil Sovereign Fund, Estado Says

Petroleo Brasileiro SA shares account for 80 percent of assets in Brazil’s sovereign wealth fund after the state-controlled company’s $70 billion stock offering last month, O Estado de S. Paulo reported.

Of the fund’s 18 billion reais ($10.8 billion), 90 percent is invested in shares of state companies such as Petrobras, as the oil producer is known, Sao Paulo-based Estado said, citing data from the country’s securities regulator, known as CVM.

The investment signals the fund, created in 2008, may not buy dollars to contain the appreciation of the real after the government said last month it may be used to buy U.S. currency in the foreign-exchange market, Estado said. Treasury Secretary Arno Augustin said yesterday the fund hasn’t yet bought dollars.

Petrobras preferred shares have fallen 3 percent since the Sept. 23 share sale. The real has strengthened 3.4 percent in the same period.

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

Source: www.bloomberg.com

ANALYSIS-Frontier investors seek lift from wealth funds

* Frontier economies to set up sovereign wealth funds

* Aim is to manage revenues more efficiently, cut corruption

* May also aid sovereign ratings, encourage investor flows

By Carolyn Cohn

LONDON, Oct 11 (Reuters) - Investors are eyeing a new crop of sovereign wealth funds they hope will manage revenues in frontier economies more efficiently, avoiding past pitfalls of high costs and corruption and boosting inflows and country ratings.

At least nine frontier market countries in Africa, the Middle East and Asia, from Angola to Bangladesh to Nigeria, are looking at the possibility of setting up a sovereign wealth fund.

In addition to managing wealth for future generations, sovereign wealth funds are also designed as part of broader efforts to reduce corruption and run economies more profitably.

It's an attractive proposition for countries where investors are often deterred by concerns about mismanagement.

"It's a great idea, it implies a certain discipline," said Plamen Monovski, chief investment officer of Renaissance Asset Managers, which has launched two new Africa-focused funds.

Monovski pointed to the example of Russia, which successfully used its sovereign wealth fund to help domestic companies avoid the worst of the financial crisis.

FALTERING FRONTIERS

Although many frontier markets are enjoying some of the highest growth rates in the world, they are failing to benefit from the same levels of liquidity and investor interest as before the global recession.

Nigeria's stock exchange is seeing volume of $20 million daily, compared with $30-50 million before the crisis.

Among frontier nations, Nigeria is probably closest to setting up a sovereign wealth fund to manage its oil revenues, with a bill sent to parliament in September to create the fund with $1 billion in seed capital.

The fund will have three parts: inter-generational savings, a stabilisation fund to provide more immediate budget support, and an infrastructure fund for co-investment with other investors.

The country's credentials are not great. The precursor to the sovereign fund, the Excess Crude Account (ECA), saw its assets diminish to less than $500 million, from $20 billion in 2007.

"The ECA was not protected against different claims from different parties. Both the federal government and the local state governments had claims," said Christian Esters, director, sovereign ratings, at Standard & Poor's in Frankfurt.

But Nigeria's next shot may have a better chance.

"SWFs are a buffer against fiscal shocks that allow a government to follow counter-fiscal policies. That is a positive for a rating," Esters said.

Nigeria has a sub-investment grade B+ rating from S&P.

Fitch, which rates Nigeria at BB-, is more downbeat, telling a seminar this week that if Nigeria did not succeed in introducing a fiscal buffer such as a sovereign wealth fund, it would be a key negative for the rating.

DEVIL IN THE DETAIL

A sovereign wealth fund is designed to protect assets from squandering but has to be managed within a solid framework with clear objectives for that to be effective. "It makes sense to save some of the inflows for future generations, based on best practice in places like China, Norway, Singapore," said Graham Stock, chief strategist at frontier fund manager Insparo Asset Management.

"It can be done well, but the devil is in the detail. You need good rules for what goes in and for what comes out."

Many frontier economies that are planning to establish SWFs are fighting poor rankings in corporate governance indices.

Nigeria and Bangladesh come joint 130th out of 180 countries in Transparency International's 2009 corruption perceptions index and Angola comes 162nd, in a table topped by New Zealand.

Angola is also in the bottom 10th percentile of the World Bank's worldwide governance indicators for control of corruption.

"A number of countries have established SWFs only to squander and liquidate the resources that have been set aside under short-term political pressures," wrote Edwin Truman of the Peterson Institute for International Economics in his latest book, 'Sovereign Wealth Funds: Threat or Salvation?'.

Truman cited Chad and Papua New Guinea, whose SWFs have been wound down.

Frontier economies are taking advice from multilateral agencies like the International Monetary Fund, or established sovereign wealth funds in Norway, Singapore or the Middle East, in an attempt to avoid past problems.

"The questions are similar, the issues are very similar. We need to address those issues of savings investments, how much we put aside for the future, what should we take into consideration," Louis Kasekende, deputy governor of Uganda's central bank, told Reuters.

"I don't know the answer, I'm asking the questions. We must be ready to learn from the others."

(Additional reporting by Natsuko Waki; Editing by John Stonestreet)

Source: af.reuters.com

It’s the Money, Stupid

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, is the only significant public official on record in opposition to the easy-money, zero-interest-rate monetary policy being pursued by Fed chairman Ben Bernanke. So there were multiple layers of irony when Hoenig journeyed to Lenexa, Kansas, on September 23 to deliver a dinner speech to the Hope for America Coalition, a local affiliate of the Tea Party movement.

According to Bloomberg Business Week, a Kansas-based Tea Party leader named Steve Shute praised Hoenig for his willingness to go “toe-to-toe with Ben Bernanke and the Boston-New York-Washington-San Francisco elite axis at the Fed.” He added that most members of that day’s dinner audience “believe the Federal Reserve should be abolished,” on the ground that it is “helping to destroy the country.”

Two days earlier, at the most recent meeting in Washington of the Federal Open Market Committee (FOMC), Hoenig had cast his vote against Bernanke’s latest easy-money scheme, which sets the stage for another round of “quantitative easing,” a reflection in turn of the fact that for almost two years, the short-term interest rate target controlled by the FOMC has been as low as it could possibly be, yet the U.S. economy is still stagnant.

It was Hoenig’s sixth consecutive FOMC meeting at which he cast the only vote against Bernanke’s policy. But the December FOMC meeting will be the last of his long career. He then rotates off the FOMC and in September 2011 reaches the mandatory retirement age of 65, so Team Bernanke can expect to face even less questioning of its policy—particularly given the current complacent state of the Republican party.

At the moment, Republican leaders and policy elites are advancing exclusively fiscal solutions that address only the government response to the economic crisis and not the crisis itself. Fiscal deficits did not create the crisis, and reducing deficits won’t put our economy on a stable footing. From its inception in 2007 right up to the present, the crisis derived from the interaction between excessive investment leverage and dysfunctional interest-rate policy—in other words, a predominantly monetary phenomenon, albeit one that has had grave fiscal consequences.

As long as the GOP enjoys the luxury of being the only alternative to Barack Obama and the Democrats, the party is understandably reluctant to delve into the murky depths of monetary policy. But after November 2, the Republicans’ role will change. They could do worse than pay attention to the only public official, elected or unelected, who is speaking out against current monetary policy, telling anyone who will listen—including an increasingly impatient Tea Party movement—that the root of the crisis is monetary.

Shortly after the fifth of his six “No” votes at the FOMC meeting of August 10, Hoenig delivered a speech in Lincoln, Nebraska, that explains in considerable detail the thinking behind his stubborn and lonely dissents. He recalls being on the FOMC in the third quarter of 2003, when (with strong urging from the most influential new George W. Bush appointee, governor Ben Bernanke) the Alan Greenspan Fed cut short-term interest rates to 1 percent—during a quarter, it turned out, when the economy was growing at nearly a 7 percent annual rate. The Fed then left rates at 1 percent for several months, even after it had become evident that the economy was taking off in the wake of the 2003 Bush tax cuts. This excessive loosening, Hoenig argues, allowed credit to explode and “set the stage for one of the worst economic crises since the Great Depression.”

Hoenig also believes that a milder but similar overeasing by the Green-span FOMC triggered significant dislocation a decade earlier, in the 1990s. In his review of the ominously escalating pattern in the financial crises as well as in Fed policy responses, Hoenig raises the possibility that the worst train wreck of the dying paper-dollar system may still lie ahead. Summoning his strongest language to date, Hoenig condemns as a “dangerous gamble” the Bernanke FOMC’s decision to pursue a zero-interest-rate target for months, perhaps even years beyond its appropriate time. If zero interest rates constitute a dangerous gamble, the Fed’s ongoing public campaign for additional quantitative easing must have him terrified.

It’s not that no one has noticed the policy shipwreck. But Bernanke has remained immune to criticism even from conservative inflation hawks because they can’t articulate what they would have done differently. Substantive criticism needs to extend beyond Bernanke and dissect the nature of the paper monetary system. Conservatives’ inability to offer a systemic critique, despite the fact that the paper standard is in the process of breaking down, shows the extent to which the right has been coopted by the idea that the monetary authorities should micromanage the economy.

In a sense this is not surprising, since it was the iconic Milton Friedman who helped convince Richard Nixon to suspend gold convertibility and float the dollar on August 15, 1971, leaving the Fed with full discretion to intervene in the economy to smooth out business cycles. Friedman deserves enormous credit for bringing the conservative movement and even many nonconservatives to embrace free-market theory, especially deregulation, at a time when it wasn’t in vogue. But unfortunately his long shadow extends to include his quasi-Keynesian belief that the Fed should engage in economic planning.

The awkward truth is that conservatives have grown to rely on the Fed to right the economy in a recession. After all, monetary fine-tuning can soften the blows of economic turbulence. For two decades, Republicans cheered on one of their own, Alan Greenspan, in this endeavor. President George H.W. Bush even begged Greenspan (unsuccessfully) to further cut interest rates as the economy pulled out of the 1990-91 recession.

But this dependence on monetary policy to smooth out the business cycle has proven short-sighted. Easing the downside of recessions comes with a huge cost—the pileup of debt, which opens the door to riskier financial behavior and more traumatic crises. Consider the year Hoenig singled out, 2003, when the Fed brought the Fed funds rate down to 1 percent on its exaggerated fear of deflation. The housing bubble that grew out of this easy-money policy burst with consequences no one from Greenspan on down ever imagined. And the Fed is still trying to figure out how the economy will emerge from that catastrophe.

Unfortunately for would-be incrementalists, there is no viable way to maintain the Fed’s current role as guarantor of short-term financial stability and still reform the paper money system so as to remove its tendency toward the unsustainable accumulation of debt. For the paper money system that the Fed manages not only encourages debt, the system is debt. A newly issued dollar is in fact a form of government-issued debt whose only value comes from its mandated ability to pay off existing dollar-denominated debts. In this system, more debt will always be the painless short-term cure for the general problem of overindebtedness, even though more debt is an insane long-run response to the problem of too much debt.

The self-perpetuating feature that has kept this perverse system alive is the dollar’s position as the world’s reserve currency. Before the dollar assumed this role between the two world wars, gold—something of independent value and no particular country’s liability—was used to settle international payments between central banks and composed their primary reserve asset. But with the dollar performing those functions, its oversupply has often been absorbed abroad. So Bernanke and his predecessors in the paper-dollar era have been able to print a lot of new dollars, over time inevitably driving down the global value of the dollar, without necessarily generating domestic inflation. That is the enabler of, among other things, relatively painless federal budget deficits. For a red-ink-hemorrhaging Greece or California, the specter of default is always on or near the table. For Bernanke and Congress, colossal deficits are just another day at the office.

Republicans, far from broaching this unwelcome subject, have correctly concluded they need say little new to achieve a huge comeback in Congress, given the electorate’s mounting dislike of Obama’s European-style paternalistic elitism. The challenge (and danger) for Republicans will come after the November election, particularly if they regain control of one or both houses of Congress and find themselves in need of a legislative agenda to send, or attempt to send, to the desk of President Obama for his signature or veto.

By focusing solely on fiscal policy Republicans are setting themselves an impossible task. They don’t seem to have grasped the extent to which our debt-driven monetary system enables (and therefore encourages) irresponsible fiscal policy. As was true under President George W. Bush, Republicans will be operating in a monetary environment that precludes the possibility that the federal government can ever run out of money to spend, which makes it virtually impossible to control spending.

Instead of praying that the Republicans will not fall victim to the same pressures to spend as everyone else who has served in Congress since the dollar was unmoored from gold, we must limit the power of the federal government in a way that is consistent with the reality that most elected officials, most of the time, act out of self-interest rather than in the public interest. As the past four decades have shown, our system of limited government cannot include an institutional printing press that stands ready to absorb any unwanted government issuance of debt.

That the party ostensibly in favor of limited government has left Hoenig, a reformed Keynesian, to sound the alarm is worrisome. To be effective, the Republicans will now need to show the same courage Hoenig is demonstrating by his willingness to attack his longtime central banking colleagues at Tea Party events. This courage will come only once Republicans realize, as Hoenig already does, the dangerous game the Fed is playing: calling into greater and greater question the currency by which economic values are measured and on which our financial security depends.

But embracing Hoenig’s critique of the Fed will not be enough. Republicans must go a step further. The debt-driven global monetary system inadvertently started 39 years ago by Nixon is both opaque and dysfunctional. Not a single official any longer seems to understand it, with the possible exception of one regional Fed president, a 64-year-old man who after receiving his doctorate in economics from Iowa State in 1973 went to work at the Kansas City Fed and has worked there ever since. And even Hoenig, in 2003, voted in favor of the policy that he now rightly criticizes.

Conservatives should take this opportunity to swear off the paper dollar standard and monetary micromanagement for good. This needed catharsis will allow the founding republican principles of limited government and human fallibility to inform our monetary policy. As always, the world is looking to the United States for leadership. If we do not begin to return to the simple, transparent workings of the international gold standard, where the world’s final money once again is something of independent value, the future not just of money but of global capitalism itself is likely to be cast into even greater doubt than we’ve seen so far.

Sean Fieler and Jeffrey Bell are chairman and policy director of the American Principles Project, a Washington-based advocacy group.

Malaysia's Khazanah Takes a Different Tack

By PETER STEIN

KUALA LUMPUR, Malaysia—A $30 billion Malaysian state-owned fund is testing the premise that promoting national interests is compatible with making a profit.

Those, in fact, are the twin goals that drive Khazanah Nasional Bhd., the government's investment arm that prides itself on its returns—it says its compound annual growth rate is running around 13% a year, up from 9% at the end of last year—and its ability to seed new industries.

"We like to think you can have the best of both worlds," Azman Mokhtar, Khazanah's managing director, said in a rare interview. "Unabashedly," he said, "we go out and want to create jobs."

Khazanah isn't one of the biggest players on the sovereign-wealth scene, but with a portfolio valued at 92.2 billion ringgit ($29.8 billion) at the end of last year, it still is a giant-sized investor by most standards. Like its bigger, better-known Singaporean counterpart, Temasek Holdings Pte. Ltd., Khazanah is both a fund and a holding company. It owns large swaths of the corporate sector through stakes in the country's airline, its post office, its national car maker and other businesses.

Since he took charge of Khazanah in May 2004, Mr. Mokhtar, now 49 years old, has been shifting out of noncore holdings and investing in new sectors considered strategically important for the future of this Muslim-majority country of 28 million people. Health care, leisure and tourism, technology and sustainable development are among the areas Khazanah targets.

In the universe of sovereign funds, Khazanah's aspirations set it apart from some Asian peers. Temasek likes to consider itself a professional, returns-oriented investment fund that just happens to be state-owned. It is closer in philosophy to Mubadala Development, a development fund run by Abu Dhabi aimed at producing financial returns and "tangible social benefits" for the emirate.

Khazanah's state-backed heft can be controversial when it is wielded against private-sector players. When upstart budget carrier AirAsia Bhd. wanted to build a new airport to accommodate its burgeoning traffic and avoid high landing fees at Kuala Lumpur International Airport, it met opposition from Khazanah, the biggest investor in both Malaysia Airports Bhd., the company that runs KLIA, and Malaysia Airlines. The government brokered a compromise under which Malaysia Airports is building a new budget terminal for AirAsia's use near KLIA, with AirAsia participating in the design.

The fund's footprint outside Malaysia is fairly modest. About 20% of Khazanah's assets are overseas, including those held through its portfolio companies, though its ambitions are expanding.

In July, Khazanah made its splashiest move yet abroad by agreeing to pay $2.6 billion for the 76.1% of Singapore hospital-operator Parkway Holdings Ltd. that it didn't already own. The takeover, which forced out fellow shareholder and rival bidder Fortis Healthcare Ltd. of India, was likely the first time a sovereign-wealth fund successfully launched a hostile bid outside its borders.

Hostile, that is, to Fortis. The Indian company, controlled by the Singh family of pharmaceutical giant Ranbaxy Laboratories Ltd., thought it won effective control of Parkway when it took over a 23.9% stake from private-equity firm TPG this past March for 960 million Singapore dollars ($734.7 million).

Parkway, along with its Malaysian affiliate Pantai Group, are attractive for their 15% underlying growth. But two things make this an especially important investment for Khazanah, Mr. Mokhtar said. On the one hand, Malaysia is keen to build up health-care expertise to capitalize on regional demand for high-quality medical services. And it offers a chance to leverage warming ties between Malaysia and Singapore, neighbors with a history of off-and-on political tensions.

The two governments recently signed a deal that largely resolves a land dispute and establishes a joint venture to create health-care facilities in Iskander, a Malaysian district adjacent to Singapore.

"I see this as a confluence of both strategic imperatives [and] commercial imperatives," said Mr. Mokhtar, a former research director for Malaysia at both UBS AG and Salomon Smith Barney. Ties between Malaysia and Singapore, he said, are "a critical bridge that we need to build in order for Asean [the Association of Southeast Asian Nations] businesses to grow and flourish, in order to have scale in this kind of a global competition now with China and India."

Source: online.wsj.com