Hong Kong listings revival offers sovereign wealth path to China

Sovereign wealth funds, led by Norway’s $810bn oil fund, are using Hong Kong’s listings revival to achieve a long-held goal of ramping up exposure to China.

The Norwegian fund – the world’s biggest pool of sovereign wealth – has emerged as one of the most important investors in Chinese companies this year, in spite of continued trade friction between Oslo and Beijing.

It was one of the main cornerstone investors ahead of the initial public offering of Cinda, the Chinese former bad bank set up to manage distressed debt in the late 1990s.

The fund has bought $150m, or about 6 per cent, of the $2.5bn deal. Shares in Cinda are due to begin trading on Thursday, one of a spate of deals that has followed Beijing’s announcement of a major package of economic reforms last month.

The oil fund was also a cornerstone investor in Huishan Dairy’s $1.3bn Hong Kong offering in November, and in the $1.3bn Singapore listing of Mapletree’s China real estate trust earlier this year.

Norway has also become a key international player in China’s onshore markets. In September, the oil fund became only the second institution to be granted an investment quota of more than $1bn, which it needs to buy renminbi-denominated assets within China itself. Only the Hong Kong Monetary Authority, and later Singapore’s state investment agency Temasek, have been granted such access to China’s markets.

At the end of September, the oil fund had 2.1 per cent of its $480bn equities portfolio in China, up from 1.7 per cent a year earlier, but only one-third of its exposure to Japan, France or Germany and a fifteenth the level of its US holdings. Yngve Slyngstad, its chief executive, has repeatedly said he would like to invest more given the size of the Chinese economy.

FT Video

Yngve Slyngstad, Norway oil fund

October 2013: Yngve Slyngstad, head of Norway’s oil fund, explains why the world’s largest sovereign wealth fund could dramatically increase its property investments

In spite of the increased investment ties, diplomatic relations between Norway and China remain frozen following the decision in 2010 to award the Nobel Peace Prize in Oslo to Chinese dissident Liu Xiaobo.

“Relations with China are unfortunately [still] at freezing point,” Norway’s new foreign minister, Børge Brende, said last month. “I don’t think we should expect that relations will improve in the short term but I hope they will during the next four years.”

When asked last year why Norway had been excluded from a new visa-free travel programme, Chinese officials said some countries had been “badly behaved”.

The Norwegian fund is not the only government-backed investment vehicle looking to increase its China holdings. South Korea’s National Pension Service and Canada’s Caisse de Depot Placement du Quebec both recently received fresh onshore investment allocations, while Qatar applied for $5bn in quota in June.

Malaysia’s sovereign wealth fund, Khazanah, has also been making investments, including a recent $150m stake in a Beijing water company and a cornerstone position in the Galaxy Securities listing in May.

However, international sovereign funds have shied away from all the recent Chinese bank IPOs amid continued concern over the outlook for the sector.

Global central banks have also been increasingly active in China. Last month South Africa’s central bank followed the Reserve Bank of Australia when it signalled moves to invest in Chinese bonds for the first time.

Chinese authorities are keen to attract sovereign wealth and other long-term investors to its markets. In the past year they have eased restrictions for sovereign funds, and pushed domestic companies to pay higher dividends.