Chinese fund builds up £1bn stake in BP: development ‘closely watched by Downing Street’

China is dependent on being able to import
oil to power its rapid development

Daily Telegraph: Chinese fund builds up £1bn stake in BP

Last Updated: 2:23am BST 15/04/2008

Beijing’s share-buying in Britain’s largest company, which has so far reached nearly 1pc, is being closely watched by Downing Street. Katherine Griffiths reports

A Chinese sovereign wealth fund has built up a stake of about £1bn in BP, in a move which has caused a stir within the British Government.
 
The sovereign fund is understood to have quietly acquired the shares in the market over a period. It has accumulated just under 1pc of BP, which is the UK’s largest company with a capitalisation of £104bn.

A BP spokesman said: “We are aware of the Chinese holding and we welcome all shareholders.”

The Chinese fund has also built up a stake in France’s oil giant Total worth about £1bn.

China has used its deep cash reserves to snap up shares in blue-chip companies in the UK, such as Barclays, as well as in the United States.

However, there has been particular sensitivity about funds controlled by Beijing sinking large amounts of cash into the West’s major energy companies.

A bid by China National Offshore Oil Company (Cnooc) for America’s Unocal in 2005 caused a political storm and was thwarted by the US administration.

China is dependent on being able to import oil to power its rapid development. To secure supply, its government has struck deals with oil producers the West has spurned in Africa. Buying stakes in European oil companies appears to be another way in which Beijing is seeking to have a seat at the table, sources said.

Banking sources said Downing Street was aware of the stake-building by a Chinese fund in BP. All parties are thought to be monitoring the situation closely.

The UK Government may be more open to a Chinese investor in its largest oil company than was the case in the US over Unocal.

The Chancellor, Alistair Darling, is this week in Beijing to forge greater links with London. He is due to meet Lou Jiwei, the chairman and chief executive of the Chinese Investment Corporation (CIC), and is expected to encourage the fund to consider further investments in the UK.

CIC has $200bn (£100bn) to deploy and has made a $3bn investment in the private equity firm Blackstone.

It also bought just under 10pc in Morgan Stanley for $5bn. The investor in BP is not CIC.

The Prime Minister, Gordon Brown, also extended friendly overtures to Chinese sovereign funds when he visited Beijing in January.

Mr Brown said at the time: ” We want Britain to be the number one destination for Chinese business as it chooses to invest in the rest of the world. Tens of thousands of jobs in Britain can be created from co-operation between our two countries.”

BP has several other sovereign funds from other countries as shareholders, including the Kuwait Investment Authority.

The KIA, the world’s largest sovereign fund, was forced in 1988 to divest some of its 20pc-plus holding in BP by the then prime minister, Margaret Thatcher.

Shares in BP closed up 2 to 549p yesterday. They have jumped from 500p since the start of April.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/15/cnbp115.xml

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