Reader's Letter Of The Day

From The Metro (17 June, page 14):

Why are our privatisation-obsessed politicians so happy for our assets to be sold off to state-owned companies from other countries?

Richard, London.

Genius. I wish I'd thought of that.

That multi-billion Chinese investment in Thames Water was no such thing.

I think The Telegraph had the most accurate summary of what has actually happened. The BBC's version is also reasonably good. To cut a long story:

1. Thames Water was privatised donkeys years ago, and all those little UK popular capitalists did the decent thing and sold all their shares to German utility concern RWE in 2001.

2. Various pension, investment and sovereign wealth funds set up a company called Kemble Water which bought Thames Water for £8 billion [gross] from RWE in 2006.

3. Stakes in Kemble Water change hands occasionally, for example "In December [2011], the Abu Dhabi Investment Authority, another sovereign wealth fund, bought 9.9pc of Kemble for an undisclosed price. Macquarie European Infrastructure Fund was the majority seller in that deal."

4. The Chinese sovereign wealth fund (China Investment Corporation, CIC) has now bought 8.68% of Kemble Water "for an undisclosed sum which analysts believe is at least £500m [from] Santander Private Equity, part of Spanish banking group Santander's asset management arm, and Finpro, a Portuguese investment vehicle..."

5. So big deal really, legal ownership* of Thames Water has been in foreign hands since 2001 (and chunks of it before then), it is merely that Juan Foreigner has now sold a bit of it to Johnny Foleigner. Not a single penny has been invested in the UK as a result of this, and it's not even as if we have reduced our net indebtedness to the Chinese. George Osborne is making an idiot of himself by prancing round and pretending otherwise.

* Of course, in practice, the UK government, OFWAT and so on still have reasonable day-to-day control over Thames Water. That's the nice thing about selling off stuff to foreigners, instead of them having you over a barrel, you have them over a barrel.

On Iceland

AFIAA, Obnoxio was the first to pick up the story about our gummint using anti-terror legislation against Icelandic banks, which has now gone mainstream.

Be that as it may, and whatever the mechanics, this illustrates the basic principle that I outlined back in February:

"if unfriendly foreign governments (China, Russia, Saudi Arabia) invest in your country, then they haven't got you over a barrel: you've got them over a barrel."

To cut a long story, Icelandic banks were taking deposits from UK citizens and councils, lending them to Icelandic buy-out groups, who in turn used the money to buy up The High Street. All we are doing now is unravelling that process.

"Morgan Stanley in 20% stake sale"

As predicted on this very 'blog*, once you net off all the debits and credits, the ultimate source of finance for our cheap loans was China, Japan etc, and seeing as we can't repay them in cash, we'll let them gradually take over our banks.

One story I missed from July was Barclays issuing more shares to The China Development Bank and other SFW's. Which is mighty chucklesome; the self same bank invested £1.5 billion in Barclays just over a year ago, and has, presumably, lost one third of its money, even after the recent upward tick.

See also Nomura to buy Lehman's Asia business.

* See here or here.

Germans don't do irony

"Germany's ruling coalition has cleared the way for measures to block unwanted investments by foreign sovereign wealth funds"

"RWE, the German utility company, has made an indicative all-cash offer ... for British Energy"

"MPs call for BAA to be broken up"

Excellent, excellent.

Firstly because it's exactly what I recommended last week, and secondly it illustrates who's got whom over a barrel when domestic companies and assets are foreign-owned. If BAA were still owned by a UK-domiciled group, it would be able to exercise far more - in this case malign - influence over MPs to resist such a move.

"Sovereign wealth investment is a force for stability"

Another fine article in yesterday's FT, in which John Kay says what I have always said; if unfriendly foreign governments (China, Russia, Saudi Arabia) invest in your country, then they haven't got you over a barrel: you've got them over a barrel.

"America to press for restrictions on potent sovereign wealth funds"

"Bunch of wankers miss the point", really.

If e.g. Saudi Arabia or Russia or some other evil foreign country buys up a shed load of 'vital US assets', which country is then more dependent on the co-operation and friendship of the other?

If said evil foreign country declares war or something*, all the Americans have to do is to expropriate their US-based assets, ergo, this sort of thing makes it less likely that an evil foreign country will declare war on the USA.

So from the American point of view, this is a win-win. There's money coming in and American influence on other countries' foreign policy is strengthened**.

* Whether military, political or economic warfare.

** See also Venezuala. They have expropriated foreign owned oil interests, without provocation. Why should the USA or the UK now give a shit what happens down there? All they have to do is wait until Chavez has completely fucked things up and he gets replaced by somebody more sensible, then Big Oil can buy the stuff back for cheap in exchange for getting the oil industry back on its feet. Seeing as Big Oil plan decades ahead, I suppose this is just a minor inconvenience for them.