Berlin looks to vet foreign fund deals

The German government is looking at setting up an agency to vet acquisitions by state-controlled foreign funds amid rising concern about the financial might of China, Russia and oil-producing countries.

Government officials told the Financial Times the finance ministry, economics ministry and chancellery were investigating whether foreign state-owned funds posed a national security risk. Officials are particularly anxious about any threat to take over German banks.

Should this be the case, Berlin could create a German equivalent of the US Committee on Foreign Investment, known as Cfius, the inter-agency panel that can recommend the US president block foreign direct investments it deems a threat to national security.

The move represents a rising concern in some western capitals at the growing economic might of state-controlled funds.

“We are seeing record currency reserves in highly centralised countries,” a finance ministry official said. “This is not necessarily a problem but given the leverage possibilities available to foreign state-controlled funds, it is something that needs looking into.

“This is at a very early stage, but depending on the result of our investigations, we may consider setting up an inter-ministerial committee on the US model.”

The recent $3bn Chinese investment in Blackstone, the US private equity group, is among the transactions that have drawn the attention of German authorities. Blackstone owns 4.5 per cent of Deutsche Telekom, the former telecommunication monopoly.

Russian investors have approached the German government about its remaining stake in Deutsche Telekom, while Dubai’s investment fund bought 2.2 per cent of Deutsche Bank.

Morgan Stanley puts the total assets of Chinese, Russian and Middle Eastern state-controlled funds at $2,500bn. Berlin is more concerned about investments by funds than by public-sector companies because of the funds’ ability to leverage their cash.

Among the risks Berlin is investigating is an indirect takeover of one of the country’s largest banks by a foreign government. These have capitalisations that are lower than average and have long been considered potential targets.

Another scenario is whereby Chinese state-controlled investors would buy small engineering companies to siphon off patents and intellectual property.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from and redistribute by email or post to the web.