Collated Emerging Markets stories
Emerging Markets Stories on HSBCnet
China's Global Resource Quest
China's global resource quest
Published: 05 May 2008
China’s rapid industrialisation has created tremendous demand for fuel, steel and other mineral resources. Chinese
mining companies raise their production targets every year and already, China has unseated South Africa as the
world’s largest gold producer. Recognising that local sources alone cannot meet the nation’s needs, domestic
producers have been looking to ensure their supplies by investing in mining companies and projects overseas. In
2006, a quarter of China’s outbound investments went to the mining sector.
Controlling ownership
Last year, HSBC acted as sole financial adviser to Monterrico Metals plc, a London-based resource development
company, assisting in Monterrico’s acquisition by the Xiamen Zijin Tongguan Investment Development Co Ltd (the
Zijin Consortium). Monterrico owns the Rio Blanco copper project in Peru, one of the largest copper deposits in the
world, capable of supplying up to 191,000 tonnes of copper per year.
Monterrico will benefit from Zijin’s expertise in large-scale mine development and operation, as well as the
consortium’s financial resources. The Zijin Consortium, meanwhile, expects the investment to help it meet its targeted
24.9 per cent increase in copper production this year. Zijin Mining also acquired three other projects in Peru and
Tajikistan in 2007. The Monterrico deal was the first UK public offer by a Chinese corporate in the metals and mining
sector. Following the successful negotiations, Zijin gained 89.9 per cent ownership of the company.
Monterrico appointed HSBC’s resources and energy group to provide strategic financial advice. HSBC relationship
managers took Monterrico's executives to China, joining them up with the lead investors and helping the parties
explore their investment options.
HSBC’s resources and energy group was able to guide both sides through the intricacies of the cross-border deal.
The team needed to put a solution in place so that all Chinese regulations and investor-related approvals could be
met. For Chinese investors, outward investment is still a relatively new concept. HSBC's local teams are able to work
with clients in China to help familiarise them with international market dynamics and investment processes.
Taming the resource-hungry image
The dragon is one of China’s most enduring national symbols. But as HSBC Group Chairman Stephen Green has
noted, the mythical creature evokes differing emotions among Asians and Europeans. “The dragon is a symbol that
perfectly captures the complexity and ambiguity of relations between the West and the East,” said Mr Green. This is
as true in mythology as it is in the context of global capital mobility. “China’s appetite for foreign assets is giving rise
to concerns overseas… public and political opinion is, at best, wary of China’s intentions if not downright hostile,” he
observed.
“China may take comfort in the fact that its experience is by no means unique,” said Mr Green. Japanese companies
that acquired international assets in the 1970s and 80s experienced similar reactions. But today, acquisitions by
Japanese companies would rarely cause comment. “I fully hope and expect that in the next decade or so, as China
continues on its chosen path of integration with the world economy, the overseas ambitions of Chinese firms will
come to be judged on their business merit, rather than on political grounds,” said Mr Green.
Right now, the country’s priority sectors are the manufacturing, mining and IT industries. Part of the China package is
the extension of financial assistance to favoured trading partners and governments.
Building bridges of bilateral opportunity
HSBC was the sole financial adviser to China Vision Resources Ltd on its USD800 million investment in UK-based
Anglo American plc. The latter has an extensive pipeline of mining and natural resources projects spanning five
continents. HSBC’s strong emerging markets position and roots in both the UK and China proved useful in bridging
the 4,987-mile gap between Beijing and London to make the deal happen.
The transaction was the first large-scale direct equity investment involving Chinese capital in a London-listed global
resource major. The HSBC resources and energy group helped China Vision to develop the sophisticated
arrangements necessary for the all-cash investment. The deal underlined HSBC’s experience in the Chinese market,
close relationship with regulatory authorities and extensive knowledge of the European mining industry. There were
also differences in business culture that needed to be bridged, and HSBC was able to help find a middle ground
between the two cultures.
In international transactions involving differing economic systems and contrasting cultures, HSBC has both the history
and the global reach to help bridge the gap between markets.
The Bridge between Emerging Markets
The bridge between emerging markets
Published: 26 May 2008
Over the past 20 years, China has grown to become a central player in the world's high-technology industries. Rapid
industrialisation and economic growth, foreign direct investment and technology transfer have helped China become
a highly attractive base for the development and provision of technology products and services.
While much of China's initial industrialisation was driven by demand and investment from the developed world, that
pattern is changing. With many of the leading industrialised nations now experiencing economic downturns, the focus
of China’s investments is increasingly turning to other emerging markets, where rising GDP, consumption and
liquidity are driving strong demand for Chinese products.
Speeding up technological transfer
As a global bank with a long history of working in emerging markets, HSBC is well-positioned to connect potential
investors with new markets and growth opportunities. Such is the case in China’s technology market, which has
become a driving force behind the country’s manufacturing and export growth.
Since 2000, ASE Assembly and Test (Shanghai) Limited (ASET) has been a one-stop-shop offering outsourced
semiconductor assembly and test services.
The company is a subsidiary of the ASE Group of Taiwan, which rose to become a leading integrated circuit backend solution provider since 2003. Founded in 1984 in Taiwan, Advanced Semiconductor Engineering, Inc established
its first overseas packaging and testing facilities in Malaysia in 1991and over the following decade, expanded its
design, production and testing operations into China, Korea, Japan and the United States.
Last year, ASE integrated Global Advanced Packaging Technology (GAPT) in Shanghai, China, renaming the
company ASE Assembly and Test (Shanghai) Limited (ASET). The subsidiary is expected to play an important role
as China picks up production to meet the group’s expanding global business.
The right mix in a difficult market
ASET plans to set up two more outsourced semiconductor assembly and test (OSAT) services operations in
mainland China. As the house bank of ASE’s China operations, HSBC played a key role in the financing of ASET’s
expansion plans. The bank acted as joint mandated arranger and bookrunner for a USD147 million five-year
syndicated term loan facility that was finalised early 2008.
Eight international and local banks participated in the transaction, demonstrating ASE Group's financial strength and
high standing in the industry. Philip Lipton, managing director and head of HSBC Syndicated Finance, Asia-Pacific
said the deal attested to HSBC's leading position in cross strait transactions between Taiwan and the mainland.
“We were working under difficult market conditions. Onshore liquidity had tightened in China and banks had to ration
their lending. But we managed to get a good mix of international and local banks to invest,” said Mr Lipton.
“We had to come up with an arrangement that all the investors felt comfortable with. This underlines HSBC’s
capability in structuring, executing and distributing syndicated loans.”
___________________________________________________________________________________________
We were working under difficult market conditions. Onshore liquidity had
tightened in China and banks had to ration their lending. But we managed to
get a good mix.
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Sending the right signals
In another instance of HSBC helping to join up technology interests in both developed and emerging markets, HSBC
acted as sole mandated lead arranger, facility agent and security agent in a USD228.5 million three-tranche financing
for the procurement of a new telecommunications satellite by PT Indosat Tbk (Indosat).
The Palapa-D telecommunications satellite will be built by European satellite systems developer Thales Alenia
Space. China is involved in the project through its export credit agency Sinosure and will deliver the satellite to orbit
via its Long March 3B rocket.
The financing package, involving two tranches supported by Sinosure and France’s COFACE and a third commercial
tranche, demonstrated HSBC’s joined-up approach in delivering multi-product, cross-border financing solutions
between emerging markets.
The Palapa-D, which is expected to boost Indonesia’s telecommunications, television, internet and data
communications industries, is scheduled to be launched in September 2009.
Benefiting from experience
As emerging markets increasingly look to one another to support domestic demand and manufacturing capacity,
HSBC expects investment opportunities to continue to grow. And with HSBC’s established network reaching all the
world’s key emerging economies, investors know that even in difficult economic conditions, HSBC can help bridge the
gap between markets.
'China-plus-one' Pulls Investors to Vietnam
'China plus one' pulls investors to Vietnam
14 July 2008
Vietnam FDI surges as Greater China investors spread operations bases
While mainland China remains the primary production base for most of Greater China's manufacturers, rising costs
on the mainland have convinced many companies to establish secondary manufacturing operations in other
developing economies.
"At the end of the '80s, a lot of Taiwanese and Hong Kong companies migrated their manufacturing operations to
China," recalled Tony Kuo, Vice President and Head of Greater China Business, Commercial Banking. "As the China
market opened up, there was a tremendous influx of companies. At the time, Vietnam was nowhere on the radar
screen."
But in recent years China's comparative advantage as a source of low-cost labour has slipped, as its manpower costs
have risen. With an abundance of multinationals recruiting, China's workforce is graduating from low-wage labour in
favour of higher paying, skilled employment. Costs have risen further due to a dependence on imported raw
materials, and China's manufacturing dominance in many product sectors has seen export limits imposed on
Chinese-made products by some trading partners.
Aligning regional interests and resources
While China's continuing strength as a manufacturing base remains unchallenged, many international corporations
have adopted a "China plus one" strategy – adding a second or third production base outside China so as not to be at
the mercy of fluctuations in China's labour and resources market. For example, a number of Taiwan companies have,
over the past few years, migrated parts of their manufacturing operations to Vietnam.
In 2005, in response to this trend, HSBC set up its Regional Alignment Business in Vietnam with the purpose of
joining up geographically-related economies. The Regional Alignment Strategy is part of HSBC Commercial
Banking's (CMB) Leading International Business initiative under the leadership of Margaret Leung, CMB's Global CoHead and Group General Manager. Vietnam was included under this regional alignment strategy due to the growing
number of customers from Greater China Region.
Vietnam star rising
"More and more people took notice of Vietnam," said Tony. "That's why, in the early '90s, we saw an influx of
companies from Hong Kong and Taiwan entering Vietnam as they diversified their manufacturing base of operations.
Also in Vietnam's favour is that investors and economists watching from the sidelines perceive that the country's
relationship with the United States is due to normalise." Those investors anticipate a sharp increase in exports and
foreign direct investments (FDIs) for Vietnam once trade agreements with the US are in place.
"FDIs from the Greater China Region account for more than 30 per cent of total FDIs into Vietnam and more than 28
per cent of the total investment capital. The year-to-date figures show that Taiwan is the number one foreign investor
in Vietnam. Fifty per cent of FDI is from Taiwan," said Tony.
Selling Vietnam
HSBC is actively promoting Vietnam to its corporate clients. Over the past two years, HSBC has sponsored the
Euromoney Vietnam Investment Forum, involving some 1,200 candidates from more than 36 countries and territories
studying investment opportunities in Vietnam.
According to Lenny Chu, AVP for HSBC Global Banking in Vietnam, HSBC Taiwan maintains business relationships
with more than 25 large Taiwanese multinational corporates. "Of these, 12 are already investing in Vietnam. Plus, we
have heard the investment plans of two or three more groups," said Lenny. "This shows that over 50 per cent of our
Taiwanese multinational clients are now actively participating or have plans to invest in the Vietnamese economy."
____________________________________________________________________________________________
Over 50 per cent of our Taiwan clients are now actively participating or have
plans to invest in the Vietnamese economy.
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Expanding industry, supporting government
In 2003, HSBC Vietnam played a role in a USD162.3 million syndicated loan made to Formosa Industries Corp (FIC),
a locally incorporated textile raw materials manufacturer. FIC is wholly owned by Formosa Plastics Group (FPG),
Taiwan's largest industrial conglomerate and one of Asia's biggest petrochemical groups. This was followed in 2004
by a USD126.9 million syndicated loan for FIC, with HSBC as co-arranger. At the time, these were Taiwan's biggest
investments in Vietnam.
With registered capital of USD270 million, FIC has made sizeable investments in Vietnam. These investments have
given a tremendous boost to the country's textile and garments industry, which employs 4.7 per cent of the nation's
workforce. The availability of raw materials in Vietnam is an added advantage for textile and garment manufacturers
setting up operations in the country.
In 2006, Vietnam's textile and garments industry was the country's number two export, after crude oil, bringing in
USD5.8 billion. The sector's top clients include: Itochu Corporation, JC Penney, K-mart, Lee Cooper, Li & Fung, Sara
Lee, Sumitomo, Tommy Hilfiger, Victoria's Secret, and Wal-Mart.
FIC's investments include a coal-fired power plant as a backup supply for the factory. A portion of the 150MW of
electricity generated by the plant is bought by the government-owned Vietnam Electricity (EVN), under a power
purchasing agreement (PPA). This investment to supplement Vietnam's electricity supply is significant in a country
where electricity is a precious resource.
Offering HSBC efficiencies
As with the rest of the world, Vietnam is battling with inflation. Meanwhile, the foreign investment picture continues to
look promising.
The Formosa Plastics Group announced this year a USD7.8 billion investment in a number of projects, including what
will be Vietnam's largest steel plant, a deep port harbour, a petrochemical refinery, and another power plant. This
commitment makes FPG this year's biggest foreign investor in Vietnam.
Hon Hai Technology Group, one of the world's largest Electronic Manufacturing Services (EMS) providers with more
than 15,000 patents worldwide, has committed to invest USD5 billion in Vietnam over the next three to five years. The
company, an existing HSBC client, manufactures on behalf of global brands including Apple, Nokia and Sony, and is
building manufacturing facilities in several provinces across the country.
"HSBC is offering the efficiencies of our strong Payments and Cash Management solutions to facilitate the
transactions involved in these major Vietnam projects, both local and cross-border," said Lenny.
While a growing number of investors in Vietnam realise the cost benefits of a China plus one strategy, HSBC has
been able to extend that advantage. The Group's global distribution network and technology infrastructure help
international firms to connect across borders and achieve greater efficiencies beyond simple labour savings.
The birth of HSBC Bank (Vietnam)
Journeying with Our Hosts: The Way We Do Business
The significance of HSBC’s gaining approval from the Vietnamese government to set up a
locally incorporated bank, fully owned by the Hongkong and Shanghai Banking Corp Ltd, goes
beyond expanded coverage and product offering— to the Bank, this is our prize reward for
doing business the way we do business.
Long-term commitment
The moment HSBC enters a market, it’s there for the long-haul. Through the political and
economic upheavals and downturns of the local economy, the Bank operates with a view to the
long-term. To do this, it needs an accurate view of the local market even before it sets foot on
the territory. And as far as HSBC’s track record is concerned, its faith in the emerging markets
has proven on-the-money and well-rewarded. Vietnam is one such market.
HSBC saw Vietnam’s potential as early as 1870 when it opened an office in Ho Chi Minh City
(then Saigon). Amid the political upheavals of the nation in succeeding years, HSBC continued
serving the needs of the then-primarily agricultural country. In 1995, after the Socialist Republic
of Vietnam became a full member of the Association of Southeast Asian Nations (Asean),
HSBC was among the first to show its support to the government and opened a new full-service
branch in Ho Chi Minh City.
Prepping an economy for the global stage
After years of gradually opening its economy and years of negotiations, in 2007 January,
Vietnam was accepted into the World Trade Organisation (WTO) as an official member. Along
this road, HSBC made strategic investments in the Vietnam Technological and Commercial
Joint Stock Bank (Techombank), taking a 10 per cent stake in 2005 and raising this to 15 per
cent as regulatory guidelines on foreign holdings allowed this in mid-2007. The investments
allowed HSBC to take a more active part in the business of nation building.
HSBC Bank (Vietnam) CEO Thomas Tobin says HSBC is following the Vietnamese
government’s roadmap for the country, especially after it has joined the WTO. “Foreign banks
will play a greater role in the domestic economy. Through our strategic stake in Techombank,
we can help them to develop faster and promote faster economic development,” says the HSBC
executive who first set foot in Vietnam in 1998.
In step with the nation’s vision
In October of 2007, after a ten-year journey, Vietnam, along with four other countries, was given
temporary seats in the United Nations Security Council—appointment to take effect in January
2008. In step with the nation’s aspirations, HSBC pushed for its bid to locally incorporate in
Vietnam late 2007. And in March of this year, Vietnam’s Prime Minister Nguyen Tan Dung
presented a local incorporation license to the President of HSBC in London on March 4 during
his official visit to the UK.
The year before, the HSBC CEO visited Vietnam to speak at the 2nd Annual Vietnam Investment
Forum which brought
in some 1,200 delegates from more than 36 countries and
territories to check out the investment opportunities in Vietnam. HSBC has
been the proud lead sponsor of the event for two years running.
HSBC Group President Michael Geoghegan delivers keynote address at the Annual Vietnam
Investment Forum
Group CEO Michael Geoghegan in a meeting with
Nguyen Tan Dung
Vietnam's PM
Walking a mile in another’s shoes
Sandy Flockhart, HSBC’s Asia CEO, said, “Local incorporation will enable HSBC to play a full
part in the development of this dynamic emerging market and represents an important milestone
in HSBC’s long history in the country." With this latest opportunity, HSBC’s interests, more than
ever, have become intricately woven into the life of the nation.
Previously, HSBC relied heavily on Techombank’s 80 branches for the distribution of its
products. The latest opportunity for HSBC will allow it to expand from its present two branches
in Hanoi and Ho Chi Minh city and its representative office in Can Tho to a targeted 10 branches
all over the country this year. Currently, the bank employs some 700 people. This is expected to
easily double this year alone.
At the heart of HSBC’s journey in this market, of course, are the people of Vietnam. Already the
largest foreign bank in Vietnam, the local licence opens new doors into this emerging market,
enabling it to meet the needs of more customers. To do this, “Development and empowerment
of local staff is a priority in human resources management at HSBC in Vietnam… for the long
term, I can say that local employees are the future of our business here,” he emphasises.
Beyond HSBC’s employees in Vietnam, the Bank also looks to serving the population at large
through its Corporate Responsibility (CR) programs. Priority projects are in education and the
environment. So far, more than 600 talented but marginalised students have benefited from the
HSBC Annual Scholarship Programme. Separate programs for the disabled, street children and
foster children are also in place. Events for victims of cancer and calamities have been
organized. And last year, to encourage the youth to participate in their nation’s lunge towards
economic prosperity, HSBC launched its Young Entrepreneur Awards.
Does HSBC’s journey in Vietnam end with local incorporation? One might as well ask the
Vietnamese government if their membership in WTO and gaining a seat on the UN Security
Council represents the end of their journey. Lao-tzu said: “A journey of a thousand miles
begins with a single step.”