Tuesday 8 September 2009

Beijing to back state firms acting against banks

Beijing has publicly put its weight behind some state-owned firms struggling with oil derivatives losses, saying it will back them in legal action against the foreign banks that sold the products.

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Guanyu said...

Beijing to back state firms acting against banks

Some enterprises have sent letters to foreign banks about oil derivatives trades

Reuters
08 September 2009

(BEIJING) Beijing has publicly put its weight behind some state-owned firms struggling with oil derivatives losses, saying it will back them in legal action against the foreign banks that sold the products.

In a statement yesterday, the State-owned Assets Supervision and Administration Commission said some state-owned enterprises had sent letters to their trading partners about oil structured options trades, confirming a report in Caijing magazine last week that sent shudders through the banking community.

‘(SASAC) will support companies to minimise losses and protect rights through negotiations and holdings management. We also reserve the right to launch legal suits,’ the agency said.

The move is the latest by SASAC to curb the over-the-counter derivatives business after a series of corporate commodity and forex hedging deals went spectacularly bad over the past 10 months, costing Chinese state firms billions of dollars.

Bankers were unhappy with the latest developments. ‘If they declare bankruptcy, it is different. But if these companies are still in business, it is not acceptable for them to just walk away from the losses,’ said a Singapore-based banker, who like others declined to be named.

The agency did not specify the names of state firms and their trading partners involved in the issue.

A Singapore-based bank source told Reuters last week that Air China, China Eastern and shipping giant COSCO had issued almost identical notices to their foreign investment banks.

Major global providers of commodity risk management such as Goldman Sachs, UBS, Morgan Stanley and JPMorgan were not immediately available for comment.

Lawyers said that the details of the contracts will be key in deciding whether Chinese state firms can just walk away from their loss-making trades.

‘As far as I know, many of the contracts signed between foreign investment banks and Chinese state firms follow the International Swaps and Derivatives Association (ISDA) format,’ a Beijing-based derivatives lawyer said.

‘Usually the ISDA format allows the product-selling banks to choose the region and types of law their contract should be subject to,’ said the lawyer, who declined to be named.

That means that the investment banks can choose regions other than China to resolve their disputes with Chinese firms, and usually these contracts will be regarded as legal in other regions, the lawyer said.

The lesson for Chinese firms is that they have to increase their expertise about derivatives and make sure they have the right to choose Chinese law to settle their dispute with their banks, the lawyer added.

SASAC said in the statement that it was also investigating some state firms’ oil option trades and repeated that it would ban state firms from making speculative derivatives trades. It also warned that state firms should choose trading partners carefully to steer clear of complex products. Some state firms have been complaining that foreign investment banks sometimes did not reveal sufficient information about the potential risks of the products they are touting.

Since January, SASAC has sent a series of warnings to crack down on the sale of derivative products by foreign banks to Chinese enterprises who bought them as hedging instrucments. In July, it ordered state companies to report holdings of futures, options, forwards and swaps, and investment performances, to the watchdog within 10 working days of the end of each quarter\. \-- Reuters

PC said...

Last done: 0.14 (-0.01, -6.67%)
Volume: 46,512,000
Price Range: 0.135 - 0.155

Transcu stock sold down in heavy trade

Blocks of shares in bio-medical company sold in married deals

By VEN SREENIVASAN
September 8, 2009

THE stock of bio-medical company Transcu Ltd suffered a selldown yesterday, resulting in a one-fifth plunge in its market value. Jittery investors scurried for cover as the stock was dumped in a series of married deals struck at prices near recent record lows.

After opening unchanged at 19 cents, the counter headed straight south, with particularly heavy selling during the late afternoon session pushing it down to a close at 15 cents - a 21 per cent or 4-cent loss for the day.

The lowest the stock has ever fallen to this year is 12 cents, amid a market-wide selldown in early March this year.

Some 53 million shares changed hands yesterday, including some 24 million units in batches of married block deals at 14.5 cents and 15 cents.

Market watchers appeared perplexed by the huge selldown on a stock that has generally been quite resilient amid the recent market volatility.

'Somebody could have decided to liquidate positions quickly,' remarked one dealer. 'And this has scared other shareholders.'

Indeed, the selldown set off a retail selling spree which snowballed into huge sell orders towards the final hour of trading.

Brokers reckon many retail investors who piled into the stock last week at around 22 cents would have got their fingers burnt.

When contacted, the company said it did not know what triggered yesterday's selldown.

'We have been watching the stock price movement,' said group investor relations head, Melody Chow. 'As far as the company is concerned, nothing has changed, and we are still proceeding with our plans.'

These plans include final stage clinical trials for its trans-dermal drug delivery (drug patch) system to obtain US Food & Drug Administration (FDA) approval. The company is targeting commercialisation of the trans-dermal patches - which can deliver pain-killing and other drugs via the skin - by early 2011.

Transcu's other two divisions develop green energy solutions and new age skin replenishing and anti-ageing cosmetics.

It has already filed nearly 200 patents.

Transcu - listed on the Singapore Exchange last year through a $675 million reverse takeover of Eng Wah Organisation - posted a loss of some $7.3 million for the three months ended June 30. It counts former US secretary of state Alexander Haig, ex-deputy secretary of state Richard Armitage, and prominent Singapore lawyer Lee Suet Fern among its directors.