China buys 1.6% stake in Total

China buys 1.6% stake in Total

By Richard McGregor in Beijing, Peggy Hollinger in Paris and Henny Sender in Hong Kong

Published: April 3 2008 13:53 | Last updated: April 4 2008 03:35

The body that manages the bulk of China’s $1,650bn in foreign exchange reserves has bought a 1.6 per cent stake in France’s Total, the fourth-largest oil group, in a sign of its more aggressive approach to investing the funds under its control.

China’s State Administration of Foreign Exchange, or Safe, which operates under China’s central bank, began building its stake, valued at €1.8bn ($2.8bn), several months ago, according to a person close to the company.

It is understood that this has been done with the full knowledge of the oil company and representatives of Safe are likely to have met Total’s team, the person said.

News that France’s biggest company by value has drawn the interest of Chinese funds is likely to revive a debate over economic patriotism in France, a phrase coined by Dominique de Villepin, the former prime minister, after rumours of a possible bid for Danone by PepsiCo of the US sparked a national outcry.

In China, the revelation of Safe’s purchase will heighten tensions between it and the China Investment Corporation, the country’s sovereign wealth fund established last September, with $200bn of funds under its control.

Safe’s more aggressive investment posture after the establishment of the sovereign wealth fund has caused divisions at the top of the Chinese government because of concerns that two agencies could be competing in what Beijing recognises as a geopolitically sensitive area.

The CIC’s attempts to establish itself in the global investment community as a transparent and independent investment entity, a challenge given the focus both on China and sovereign funds generally, is being damaged by Safe’s assertiveness, according to officials in Beijing.

Safe usually invests most of its funds in low-yielding securities, such as Treasury bonds and mortgaged-backed securities, but the falling US dollar has also put pressure on it to diversify its portfolio.

China added more than $100bn in funds to its reserves in the first two months of this year alone, all of which come immediately under Safe’s control.

Nicolas Sarkozy, the French president, has said that state-owned funds are welcome to invest in France as long as they are transparent and that French companies can invest freely in their countries.

Total says it is used to having state funds as investors and even welcomes them.

“These funds are no different from other shareholders,” the company said.

“In fact, Total actually welcomed this development as these public investors helped to create a stable long-term shareholder base.”

Safe is the only Chinese public fund to have taken a meaningful stake in Total.

The group already has sovereign investors from Norway and the Middle East among its shareholders.

According to Total’s latest accounts, 88 per cent of its shareholder base is accounted for by institutional investors. About 8 per cent is held by individual entities.

The biggest single shareholder in the oil company is Albert Frère, the Belgian entrepreneur, with 5.3 per cent, while employees own 4 per cent.

Safe could not be reached for comment.