Sep 12 2008
China buying Costa Rica government bonds
For years more than 10 years on and off I have held Costa Rica Bonds and have been very pleased. I felt I should post this as it is encouraging to read this coupled with a previous post whereby Moody did an upgrade.
BEIJING, Sept 12 (Reuters) - China is secretly spending $300 million of its currency reserves to buy Costa Rica government bonds to reward the central American country for cutting diplomatic ties with Taiwan, the Financial Times reported on Friday.
The FT said it had obtained documents related to the deal after La Nacion, Costa Rica’s largest newspaper, won a court case a week ago Friday and a judge ordered the government to release the information to the public.
The State Administration of Foreign Exchange (SAFE), which manages China’s $1.8 trillion of reserves, promised to buy the bonds under the terms of a 2007 agreement whereby Costa Rica recognised China and cut links with Taiwan, which Beijing regards as a renegade province.
SAFE included a clause demanding Costa Rica take “necessary measures to prevent the disclosure of the financial terms of this operation and of SAFE as a purchaser of these bonds to the public”, according to the documents seen by the FT.
China’s Foreign Ministry said in a statement to the FT that the bond purchase and the related procedures abided by international business rules and conformed with related laws in China.
China bought the first $150 million of the bonds in January and is due to buy the second lot next January, the paper said.
It said SAFE, which does not comment on its investments, had set up a wholly owned subsidiary with registered capital of just HK$10,000 ($1,280) to receive interest payments on the bonds.
The disclosure comes against a background of concern among Western governments about a lack of transparency in the way some emerging markets’ sovereign wealth funds and central banks are investing their growing stockpiles of reserves.
SAFE has also quietly bought small equity stakes in a clutch of British blue-chip companies, according to recent media reports in Britain and China. The stakes are too small to require regulatory disclosure.
Beijing set up China Investment Corp last September and handed the sovereign wealth fund $200 billion of reserves from SAFE to manage separately.
Two-thirds of that sum represents money already invested, or earmarked to be invested, in domestic banks and other financial institutions requiring new injections of capital. (Reporting by Alan Wheatley; Editing by Ken Wills)
