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1 Talking Point 5 The Week in 60 Seconds 6 Media Week in China 7 Energy and Resources 8 Economy 9 Banking and Finance 11 Internet and Tech 13 China and the World 27 April 2012 14 China Consumer 15 Society and Culture Issue 147 17 And Finally www.weekinchina.com 18 The Back Page Don’t cry for me, Sinopec www.benitaepstein.com Memories of Evita? Argentina nationalises YPF and Beijing dodges a $15 billion bullet Brought to you by and Markets HSBC Global Banking Week in China Talking Point 27 April 2012 Last tango in Beijing? As Argentina seizes control of YPF, China avoids an M&A catastrophe “ o one in their right minds” will Nwant to invest in Argentina now, warned Felipe Calderón, Mex - ico’s president, after Buenos Aires nationalised YPF earlier this month. One reason for his fury: Mexico’s state oil giant Pemex holds a stake in Spanish energy firm Repsol, YPF’s erstwhile owner. But Calderón might need a gentle reminder that Mexico was one of the first to nationalise its own oil sector, grabbing assets from the US and the British to form Pemex in 1938. The US ambassador at the time predicted a buyer boycott and that the Mexicans “would be drowned in their own oil”. But a re - taliatory blockade failed with the onset of the Second World War and the nationalisation is now remem - Thanks goodness we didn’t buy: China’s Wen with Argentina's Kirchner bered fondly enough in Mexico, with a civic holiday. tration may not even have been of its commodities. aware that Repsol was close to sell - Last year, Sinopec made its first How about in Argentina today? ing to Sinopec. Caixin magazine re - foray into Argentina, buying Occi - This time it’s less about the British vealed “late-stage” discussions only dental Petroleum’s assets for $2.5 and Americans than the Spanish and a few days ago, with the rumour billion. Local policymakers were the Chinese. Prior to seeing YPF na - that Sinopec had signed a non-bind - complimentary. “The vision that tionalised, Chinese oil major Sinopec ing deal to buy YPF for $15 billion. the Chinese have is to go forward was reportedly on the verge of buy - But the Repsol may have held off on without worrying too much...the big ing the company from Repsol. Now presenting the terms to the Argen - North American, British and Span - the situation is unclear. tine government. ish energy firms are more selective Speculation about the timing of about where they invest in the How is Sinopec involved? the nationalisation nevertheless world,” former energy secretary The more cynical types sniff an Ar - still abounds. Another take on how Emilio Apud explained to Reuters. gentine plot to grab YPF and sell events played out: did President But whether Sinopec would have Repsol’s former stake to Beijing. Af - Cristina Fernández de Kirchner been more cautious had it grasped ter all, unlike Repsol, the invest - hurry it through to avoid having to that full nationalisation was on the ment-crazy Chinese would surely seize an asset from the Chinese policy agenda is an unknown. Chi - put their cash into opening new oil themselves? nese companies have grown more P h o t o fields, as Buenos Aires had been de - It has a plausible ring to it: Kirch - sensitive to political risk as they in - S o u r manding of the Spanish firm? ner could ill afford to alienate the vest in far-flung locations. Last c e : R e A flaw in this analysis is the spec - Chinese, now a leading lender to Ar - year’s experience in Libya was chas - u t e r s ulation that the Kirchner adminis - gentina and a major buyer of many tening, for instance, with the rebel 1 Week in China Talking Point 27 April 2012 government threatening to pe - nalise Chinese companies for Bei - jing’s apparently pro-Gaddafi stance in the early days of the revolt. Back to Argentina, and any in - vestment in YPF looks increasingly problematic. Repsol has already warned that it will take legal action against anyone attempting to invest in the nationalised firm. It is also Sinopec’s leading partner in Latin America, following the sale of 40% of its Brazilian arm to the Chinese for $7.1 billion in 2010. Relations would surely take a turn for the worse if Sinopec looked to be profit - ing from Repsol’s Argentine debacle. Best Local Currency Bond House Best Trade Finance Bank But won’t Argentina be keen on some kind of deal? Perhaps: although it looks politically awkward for Kirchner to sell a chunk of YPF back to a foreign firm so soon after taking control of the company on national interest grounds. “Our model is one of recovering Most Innovative Team of the Most Innovative Investment sovereignty,” Argentina’s president Year – Sovereign Advisory Bank for Sovereign Advisory told reporters this month, although her administration has been careful to add that it doesn’t necessarily in - tend to run YPF as a purely state- owned entity. Planning Minister Julio De Vido was sent out on a tour of foreign oil firms last week, partly as a reassurance mission but also to Best Arranger of Loans for tempt potential partners, said Ar - Corporations/Financial Best Arranger of Loans Institutions gentine media. As of last weekend, there had been no dialogue with Sinopec. “But that doesn’t mean that we won’t have contacts in future,” De Vido explained. The other obstacles to Sinopec’s fu - ture involvement? Best Bank for FX China’s domestic media have been Best Bank for FX Forwards Structured Products talking up the common ground in Sino-Argentine relations. After all, both nations are developing coun - tries, says China Securities Journal, and both like to find ‘government’ HSBC operates in various jurisdictions through its afﬁliates, including, but not limited to, HSBC Bank plc, authorised and regulated by the Financial solutions to problems. Services Authority, The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA and SIPC, and HSBC Bank USA, NA. 12-027 But that ignores the usual Chi - 2 Week in China Talking Point 27 April 2012 nese motivation for investing in overseas oil: to secure crude for ex - port (sometimes to be sent back to Planet China China itself). Strange but true stories from the new China That seems to fly in the face of statements coming out of Buenos HOT AIR? As the 12th Beijing Auto Show Aires about using YPF to secure self- kicks off this week, a record 1,125 sufficiency in oil. That might also be vehicles will be on display from a factor in why Brazil has been more carmakers. But one model that won’t be of a focus for China’s oil invest - in the exhibition hall is made by Tang Zhenping, a farmer from the suburbs of ments than Argentina to date. Beijing. According to the Beijing Evening Alongside the Repsol tie-up, News he has built a wind-powered sports Sinopec has paid $3.54 billion to car capable of travelling at 140km per Portugal’s Gaip Energia for a 30% hour. The inventor says he spent stake in another deep-sea project Rmb10,000 and laboured for three months to come up with his homemade off the Brazilian coast. design. Tang follows in a long-line of rural inventors that are building Nor is there any guarantee that a everything from robots (see WiC59) to submarines (see WiC147). His wind- bid for YPF would go through any - powered vehicle comes with a battery too, although Tang says he ran out of way, says the Financial Times. It ex - money to add a roof. If he can gather more capital, Tang’s next priority is to hibits CNOOC’s failure to secure add two solar panels to the back, to complement the car’s green BP’s stake in Argentina’s second- credentials. The inventor says that he hopes a car firm takes an interest and largest oil producer, Pan American upgrades his idea. Time to move over, Elon Musk perhaps… Energy, as evidence. The bid for Pan American, made by Bridas Corp, a venture co-owned target of Sinopec’s, not least be - for oil-backed financing. An earlier by CNOOC, broke down in Novem - cause China is thought to possess $10 billion loan was offered as a ber last year. Recriminations swiftly rich reserves itself. credit line for railway investment, followed, with BP suggesting that “Shale gas and shale oil are very to cover payments to Chinese com - CNOOC had failed to secure the req - critical resources for China’s fu - panies (see WiC70). uisite regulatory approvals. ture,” Fu Chengyu, Sinopec’s chief Inevitably, Chinese financial as - CNOOC has since blamed BP for executive, told reporters in March. sistance looks critical for countries the deal’s collapse. But the deci - “Unconventional gas will be a key struggling to access the global mar - sion to pull back also came less investment area for Sinopec and a kets. That’s a particular issue for Ar - than two weeks after Kirchner had critical area for us for production gentina, Ecuador and Venezuela: all ordered energy and mining com - [in the long term].” three of whom face interest rate panies to repatriate export rev - Still, given the commercial sensi - spreads well above those of similar- enue, in a bid to slow capital flight tivities surrounding foreign share - sized Latin American economies. from South America’s second- holdings, Beijing might choose to By comparison, Chinese terms biggest economy.

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