China Heads Towards a Sustainable Rate of Growth

Last week began with a revision of the Conference Board’s leading economic index for China
for April, as a data-calculation error led the Conference Board to change the reading to 6.8%,
from an original 9.9%. Following the new reading, the official latest Purchasing Manager
Index (PMI), a gauge of nationwide manufacturing activity, was issued by China National
Bureau of Statistics. The June PMI clocked in at 52.1, down from 53.9 in May. It indicates
China’s manu-facturing activity expanded for the 16th straight month in June, though at a
slower pace than in May.

Meanwhile, the HSBC China Manufacturing PMI statistic fell for the third month in a row to
50.4 in June from 52.7 in May, putting it close to the threshold between expan-sion and
contraction. HSBC China Service PMI also fell to a 15-month low of 55.6 in June from 56.4 in
May.

The slowdown in services activities reflects the effect of property market tightening measures.

China has been tightening credit with a raft of measures, including in-creased bank-reserve
requirements. China’s econ-omic growth peaked at 11.9% in the first quarter.

There has been some questioning in the Western media recently as to whether China’s
economy would face a “hard landing” in the near future. HSBC Chief Economist for China
Hongbin Qu said in a statement that “the fears about a hard landing are overplayed. We
expect China to achieve around 9% growth in the second half of 2010, underpinned by
massive ongoing invest-ment and robust private consumption.” UBS also kept its GDP growth
forecast for China at 10% for 2010 and 8.7% for 2011.

A path towards sustainable growth is supported by the findings of Lakshman Achuthan of the
Economic Cycle Research Institute (ECRI), who maintains four different leading indexes for
China. ECRI’s export index, with a six-month lead time, has been plunging since its
September peak. The Chinese industrial pro-duction leading index, a broader measure, with
an eight-month lead time, peaked in November, and has been declining, too, but less
dramatically. The leading index (seven months lead time) topped in November, but is showing
“a more gentle throttling back of growth.”

China’s economy is moving in the “expected direction,” Premier Wen Jiabao said in meetings
with business-people and economists last week. Policy makers will “further cement and
develop the positive economic trend” amid an “extremely com-plicated” domestic and global
outlook, he said.

“Growth in China will be sustained by infrastructure projects still under way resulting from the
RMB 4 trillion fiscal stimulus unveiled in November 2008″, Sun Mingchun, an economist at
Normura Holdings Inc. said. The nation has RMB 28.8 trillion of unfinished projects in place,
amounting to 85% of GDP, he calculates.

The recent decline in the valuations of internationally listed Chinese companies resulting from
the current manufacturing data creates a great opportunity for ARC China to deploy capital
according to our disciplined investment process and will result in increased returns in the
future as valuations normalize

China’s Wen Says Economy Heading In Right Direction

China’s government said the world’s third-biggest economy is heading in the right direction
and business people and economists expect “relatively fast” growth to continue.

Premier Wen Jiabao said the nation will “further cement and develop the positive economic
trend,” in a statement posted on the government’s website. He pledged both continuity and
flexibility in policies amid an “extremely complicated” domestic and global outlook.
Shares extended a global rout after an unexpected drop in U.S. consumer confidence fueled
concern that the recovery in the world economy is faltering. In China, government efforts to
cool the property market and the threat to exports posed by Europe’s sovereign debt crisis
have contributed to a 27 percent slump in the Shanghai Composite Index.

“The statement may help reassure some investors who are worried about China’s slowdown,”
said Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co. “Still, policy makers
may be reluctant to quickly withdraw stimulus policies given the uncertainties from the
European debt crisis and recent policies that aim to cool property and some industrial
sectors.”

The statement was issued after two days of meetings Wen held with business people and
economists, the government said. The structure of the economy is improving, with market-
driven consumption, investment and exports together driving growth, the experts were cited
as saying.

China needs to accelerate its economic restructuring and deepen financial reforms, the
People’s Bank of China said. The economy will maintain relatively steady growth this year
although it faces a “complicated situation” with challenges at home and abroad, the central
bank said.

Attendees in the Wen meeting said the economy is maintaining a “positive upturn” and full-
year growth would be “relatively fast,” according to the report. The economy is heading in the
“expected direction” set by officials’ macro- economic controls, Wen said.

China’s economy expanded 11.9 percent in the first quarter from a year earlier. UBS AG
forecasts a gradual deceleration to 8.5 percent in the fourth quarter as investment in
infrastructure and property slows.

China To Improve Access To Finance For SMEs

China pledged to improve financial services for small and medium-sized enterprises (SMEs)
by offering them better access to finance.

The People’s Bank of China (PBOC), China’s central bank, outlined principles to facilitate the
development of the country’s SMEs in a joint statement released with China’s banking,
securities and insurance regulators.

“Loans to SMEs by banks and financial institutions this year should exceed the amount last
year and their growth rate should outpace that of all loans,” the statement on the PBOC
website said.

The statement ordered financial institutions to establish independent criteria for approving
loans to SMEs and to improve their efficiency in processing loan appli-cations submitted by
SMEs.

The statement encour-aged SMEs to use renminbi for trade settlement in cross-border trade
when possible.

The statement affirmed the central bank’s support for SME’s purchases of foreign exchange
for overseas investment and Chinese companies’ foreign borrowings.

China To Be World’s Largest IPO Market This Year

China may be the world’s biggest initial public offering market this year as companies are
likely to raise RMB500 billion ($74 billion) in Shanghai and Shenzhen, Pricewater-
houseCoopers said.
China will see 300 new listings in 2010, up from 99 last year, according to a statement from
PwC. Two overseas companies and one red-chip firm, or company controlled by Chinese
holders and listed abroad, will debut on Shanghai’s international board as early as the second
half, said Frank Lyn, China markets leader for PwC, without naming the companies.

Companies have raised RMB 208.4 billion from 171 IPOs in China this year, setting the
market to surpass funds collected in each of the previous two years, according to Bloomberg
data. China’s securities regulator allowed share sales to resume in June 2009 after a 10-
month moratorium imposed to curb stock market volatility during the global financial crisis.

Haitong Securites Co. took the lead in managing domestic IPOs this year, followed by Ping An
Securities Co., according to data compiled by Bloomberg. Industrial and basic materials
companies were the biggest first-time sellers of stock in China this year in terms of the
number of deals and funds raised, the data show.

Investment banking fee income more than doubled to $2.3 billion in China and Hong Kong in
the first half from the same period a year earlier, according to a report by New York-based
research firm Freeman & Co.

China To Remain Top Asian M&A Market, JPMorgan Says

China is likely to remain Asia’s biggest market for mergers and acquisitions as companies in
the world’s third-largest economy expand and seek takeovers to tap new markets, said Todd
Marin, head of investment banking for Asia excluding Japan at JPMorgan Chase & Co.

“M&A activity involving China will expand as there are more corporates across more industries
evaluating M&A opportunities and actively pursuing transactions than ever before,” Marin
said. “While China is driving much of the activity, M&A activity is fairly well diversified across
markets including Australia, South-east Asia, and India.”

China accounted for 36 percent of the $242.2 billion in deals in the Asia-Pacific region
excluding Japan this year as of July 2, and had a total of more than $100 billion in each of the
previous three years, according to Bloomberg data. Transac-tions worth $39.4 billion so far
this year in India has surpassed the South Asian nation’s 2009 tally, the data showed.

The New York-based company ranks second among advisers on takeovers in the Asia-Pacific
region excluding Japan this year, according to Bloomberg data as of July 2. China
International Capital Corp. is the lead adviser in China on acquisitions, followed by UBS AG
and JPMorgan.

Across the region, acquisitions in the airline, natural resource, auto-mobile and logistics
industries in 2010 may outpace the number of deals in other sectors, Marin said.

Since the third quarter of last year, deals in the region have been “increasingly diversified
across the spectrum in terms of geography and industry,” he said. Transactions this year have
included the gold mining, phone services, auto, health-care and financial industries.

Southeast Asia will get in the spotlight for mergers and acquisitions in the next six months as
countries including Indo-nesia and Malaysia focus on natural resource and foodstuffs
production, and economic growth is stable, Marin said. Southeast Asia recorded mergers and
acquisitions worth $40.8 billion this year, Bloomberg data shows.

Consumption Invest-ment Dominates Chinese PE Industry

As early as in 2008, Zero2IPO Research Cen-ter forecasted that consumption based
industries would become a hotspot in China’s PE market due to the impact of the global
financial crisis. The statistics of Zero2IPO Research Center show that in 2009, consumption
based industries attracted an investment up to $6.86 billion from PE funds in the year,
representing 79.3% of the total investment in the year, and took up more than half of the
investment deals. Although different investors have different perspectives on China’s PE
market, they shared a surprising consensus, that is, the “consumption industry” will still
represent a “bonanza” in China’s PE market for an extended period of time.

The Central Economic Working Conference at the end of last year identified the objective of
striving to achieve significant progress in adjusting the economic structure via expanding
domestic demand, particularly residents’ con-sumer demand, as the focus, and steadily
pressing ahead with urbanization as the support.

As an industry closely associated with the livelihood of the public, consumption based
industries have never been affected by lack of market demand, no matter what stage the
economic development stays at.

As the urbanization process unfolds, the vast potential consumer de-mand from the rural
areas will emerge. The per-capita disposable income of the urban residents showed
continuous growth in 2003-2009. The per-capita consumer spending of the urban residents in
Q1 2010 amounted to RMB5,308, up 9.8% year-on-year. This lays a solid foundation for the
consumption upgrading in China.

Domestic consumption based industries have a bright future for China PE investment.

Buyout Firms Mount Push Into Emerging Markets

Private equity firms are making a concerted push into emerging markets amid growing fears
around the growth prospects of indebted western economies.

Emerging markets funds attracted 21.4% of cash raised by private equity firms in the first half
of this year, up from 12.6% last year and 18.9% in 2008, the previous peak, according to data
provider Preqin.

Meanwhile, buyouts in emerging markets accounted for 19% of all private equity deals last
year, the highest share so far and up from 3% in 2004, according to Dealogic. This year,
London-based Apax Partners executed Brazil’s biggest private equity deal with its $921
million acquisition of local IT group Tivit, Dealogic said.

Firms are pushing into developing countries such as China and India after their economies
grew relatively rapidly during the financial crisis, thanks to healthy fiscal positions and market
reforms. The International Monetary Fund said China’s economy expanded by 8.7% last year
and India’s grew by 5.7%, compared with contractions of 5% in Germany and 2.4% in the U.S.

Marc St. John, a partner with CVC Capital Partners, said: “Emerging market economies grew
25% to 45% over 10 years, while the old world was snailing along.”

David Rubenstein, co-founder of The Carlyle Group said: “Large emerging markets are more
stable than ever in terms of governance and market volatility, and remain relatively under-
penetrated in terms of private equity investment. The largest and most successful emerging
markets can be called ‘emerged markets.’ India and China will be the biggest economies in
the world not far from now.”

Ten Nuclear Reactors To Use Top Technology

China, which is currently building the largest number of nuclear power stations worldwide, is
expected to use one of the most advanced tech-nologies for constructing 10 of its nuclear
reactors, an energy official said.

The technology, called AP1000 from US-based nuclear power company Westinghouse, is a
third-generation nuclear sy-stem. Compared with other reactors already in use in China, those
using the third-generation tech-nology are considered to be safer and able to operate longer.
The AP1000 technology will be used on six reactors at three inland nuclear plants in Hunan,
Hubei and Jiangxi provinces – the country’s first batch of inland nuclear power projects.

The technology will also be applied for two pairs of reactors, one in Sanmen in coastal
Zhejiang pro-vince, and the other in Haiyang, Shandong pro-vince, said an official.

Future inland projects are also set to use the same technology and Chinese authorities are
considering the AP1000 as a standard, he said.

“The technology will upgrade China’s nuclear power industry, which is seeing its fastest
develop-ment now,” the official said.

The plan to use advanced technology for more nuclear reactors is in line with the rapid
develop-ment of the country’s nuclear power sector, analysts said.

As the world’s second-largest energy consumer, China now has 11 nuclear power reactors in
operation. These reactors have a total capacity of 9.1 gigawatts (gW), accounting for about 1
percent of the country’s total power capacity.

The country has three nuclear power bases: Qinshan in Zhejiang province, Daya Bay in
Guangdong province and Tianwan in Jiangsu province.

China plans to increase its nuclear power capacity to 70 gW to 80 gW in 2020, which will
account for 5 percent of its total power capacity, officials with the National Energy Admin-
istration said.

China is currently building 23 nuclear power units. The proportion of nuclear power is
expected to account for 15 percent of the country’s total power capacity in 2050, industry
sources said.

China Starts Building 1st Carbon Capture Project

China, the world’s second-biggest energy user, started construction of its first carbon dioxide
capture and storage project in Ordos in Inner Mongolia to reduce emissions.

The project will cost RMB210 million ($30.9 million) and will be able to hold 100,000 metric
tons of carbon dioxide a year, China National Petroleum Corp, the country’s biggest oil
producer and the plant’s designer, said in a statement. The facility will start operations by the
end of the year, it said.

China, the world’s largest greenhouse gas emitter, pledged to reduce carbon dioxide it emits
for each unit of economic output by 40 to 45 percent by 2020 from 2005 levels. Carbon
dioxide capture and storage, or CCS, is a process whereby CO2 is captured from gases
produced by fossil fuel combustion, compressed, transported and injected into deep geologic
formations for permanent storage, according to the International Energy Agency.

The plant’s annual capacity will be expanded to 1 million tons and 3 million tons in two
phases in the future, according to the statement.

The plant is built on the site of a coal-to-liquid project constructed by Shenhua Group Corp,
the nation’s largest coal producer, it said.

China To Include Smart Electricity Grid In Five-year Plan

China is drafting a five-year energy plan through 2015 to include smart grid technology as one
of the key industries for research and development, Xinhua News Agency reported.
The government will provide funding to build several research centers this year to develop
transmission technology to connect wind and solar power to the grid, said Li Ye, a
government official at the National Energy Administration.

State Grid Corp of China, the nation’s largest grid operator, released standards to regulate
the smart grid technology and related equipment production on June 29, covering areas such
as power generation, intelligent transmission, substations, distribution, utilization and
dispatch for the implementation of its smart grid project.

The rules, the nation’s first comprehensive standards for smart grid projects, will be
implemented in the company’s development in China and provide a reference for standards
across the country, State Grid said in a statement.

State Grid will invest RMB250 billion ($37 billion) this year to build a smart grid network in
China, Xinhua reported, citing Wang Yimin, the company’s head of smart grid department.
The company aims to install 75 electric car-charging stations and 6,209 recharging towers
across 27 cities this year, according to previous reports.

China aims to cooperate with the US to speed up the development of the smart grid and set
out international standards for grid construction, Li said.

GM’s First-Half China Sales Surge Past The U.S.

General Motors Co.’s first-half sales in China surpassed those in the U.S. for the first time as
the world’s fastest-growing major economy propelled global auto demand.

Sales in China by GM and its joint ventures totaled 1.21 million vehicles in the six months
ended June 30, topping U.S. deliveries of 1.08 million, based on figures reported separately
by the Detroit-based company. This would be the first time any overseas market has
“consistently outsold” GM’s domestic market in the carmaker’s 102-year-old history, said
Michael Albano, a Shanghai-based spokesman.

Surging demand among China’s 1.37 billion people is speeding automakers’ recovery after a
recession cut global auto sales last year and forced GM’s predecessor, General Motors Corp.,
into bankruptcy. GM is counting on expansion overseas to bolster profit as it prepares for an
initial public offering as early as the fourth quarter.

Government stimulus measures helped China’s industrywide vehicle sales jump 46% last year
to 13.6 million, surpassing the U.S. for the first time to become the world’s largest national
auto-mobile market. U.S. auto sales fell 21% to 10.4 million, the fewest since 1982, as
unemployment rose amid the worst recession in six decades.

GM and its partners aim to boost vehicle sales in China to 3 million a year by 2015 from 1.83
million in 2009, Kevin Wale, president of the carmaker’s China business, has said. The
company estimates it will top 2 million sales in the country this year.

GM’s June deliveries in China rose 23% from a year earlier to 176,486 units, the carmaker
said. The company plans to introduce 25 new or updated models in the country by the end of
2011, including its Chevrolet Volt plug-in car, it said in April.

Full-year auto sales in China may rise 17% this year to 16 million, according to the State
Information Center, even as growth may slow in the second half.

CONSUMER / RETAIL
Apple To Launch Second Store In China
Apple Inc is launching its second retail store in China, the Shanghai Apple Store, on July
10th, China Business News reported.

The move marks Apple restarting its store opening spree in China. Sources with Apple Inc
told the paper that the company plans to open two stores in Shanghai and by the end of 2011,
Apple Store numbers in China would increase to 20.

Ron Johnson, Apple’s global vice president, said earlier that up to 25 Apple Stores would be
set up in China by the end of 2012.

The first Apple Store in China was established in Beijing in 2008.

Sales of iPhone 4, Apple Inc’s latest iPhone product, totaled 1.7 million sets in the first three
days after its release on June 24.

Yum! Brands Cntinues Success in China

The US-based parent company of restaurant brands that include Pizza Hut, Kentucky Fried
Chicken (KFC), Taco Bell and Long John Silver’s – is opening another seven KFC restaurants
on the Chinese mainland, Dickie Oliver, vice president of VP Global Infrastructure for Yum!
Brands, told Britain’s MeetTheBoss.tv.

Of course, opening seven new outlets in China in a week is nothing new to either KFC or
Yum!. Yum! has been opening nearly one new KFC every day on the mainland since it
launched in China. And the Chinese Division of Yum!, based in Shanghai, has been
developing separately since the beginning of 2005 due it its size, unique strength and overall
development.

According to Yum!, this is the ninth consecutive year that the company has opened more than
1,000 new restaurants outside the United States – something that Oliver believes is critically
important to the future of Yum!

“When you look at Yum! from a global perspective, the key to our continued success and
earnings and revenue growth is going to be that expansion,” he said. “If you look at Yum!
China going from 3,000 stores today to 5,000 and up to 10,000 stores, and the amount of
infrastructure, technology systems, people capabilities and know-how required to do that, it
means we are going to have to continue to build on all of that. And that is going to be an
enormous challenge,” Oliver said. “So we continue to focus on those areas and build internal
know-how because part of our strategy is to build in-country capability.”

Yum! China currently is gearing up to introduce new technologies to their 3,000-plus company
stores and is in the process of selecting a US company from Boston to supply those
technologies.

Zhejiang Welcomes Two New Hotels From Pan Pacific

Pan Pacific Hotels Group has announced that it will open two new properties in the Chinese
province of Zhejiang: Pan Pacific Ningbo and Pan Pacific Serviced Suites Ningbo.

The opening of these new properties in Ningbo is part of Pan Pacific Hotels Group’s Greater
Shanghai strategy to establish its presence in Shanghai and the fast-growing cities
surrounding it: including Suzhou, Hangzhou, and Shaoxing. The group also opened its
seventh Global Sales Office in Shanghai earlier this year. According to A. Patrick Imbardelli,
the president and CEO of Pan Pacific Hotels Group, both Pan Pacific Ningbo and Pan Pacific
Serviced Suites Ningbo are significant and important brand-defining additions for the group as
it seeks to build its presence in China.

Pan Pacific Ningbo and Pan Pacific Serviced Suites Ningbo are scheduled to open at the end
of 2011.
 

ALTERNATIVE ENERGY
Dunhuang Solar PV Plants To Be Finished In July
Two 10-megawatt solar photovoltaic (PV) power generation plants, built by State Development
& Investment Corp (SDIC) and China Guangdong Nuclear Power Corp (CGNPC), will soon be
completed and be fully operational by July 30, as a pilot program to develop the abundant
solar power resources in Dunhuang city of Northwest China’s Gansu province.

So far, the solar power plant built by China Guangdong New Energy Development Co, a
subsidy of CGNPC, which began construction on August 28, 2009, has generated 1.07 million
kWh of electricity, and the SDIC project, which started construction on September 8, 2009,
has generated 1.48 million kWh of electricity.

The State Council, China’s cabinet, has set a strategic target to build a million-kW level solar
power base in Dunhuang by 2020.

Dunhuang has submitted the 240-mW solar PV development plan involv-ing six power
enterprises, CGNPC, SDIC Electric Power, GD Power Development Co, China Datang Corp
Renewable Power Co, CHINT Group and China WindPower Group, to the provincial
government and awaits approval.

PetroChina Plans Upgrade At Lanzhou Refinery

PetroChina Co, the nation’s largest oil and gas producer, plans to build gasoline and diesel
hydrotreaters at its Lanzhou refinery in northwestern China to produce cleaner fuels.

The company is conducting “preliminary work” on the projects, China National Petroleum
Corp, said in its online newsletter. The gasoline unit will have an annual capacity of 1.8
million metric tons, or about 42,000 barrels a day, and the diesel unit 3 million tons, the
company’s parent said.

The Lanzhou hydro-treaters will produce fuel that can meet China III standards, which is
similar to Euro III specifications adopted by the European Union, CNPC said.

The Lanzhou refinery in Gansu province can process 10.5 million tons of crude oil a year.

CNPC expects to complete the expansion of its Qingyang refinery in Gansu this year, the
Beijing-based company said in a separate statement, without giving further details.

China Huadian Plans $14.7 Billion In Energy Projects In Xinjiang

China Huadian Corp, one of the country’s five major State-owned power gener-ating groups,
plans to spend more than RMB 100 billion ($14.7 billion) in the coming 10 years to develop
coal, power and other energy projects in Xinjiang Uygur autono-mous region.

The move comes weeks after rival China Huaneng Group committed a similar investment in
China’s Northwest, home to vast untapped deposits of coal and other resources.

China Huadian would develop coal-fired power stations, coal to chemical plants, clean
energy, urban power and thermal projects and major hydropower bases in Xinjiang, the
company said in a report on its website, citing a recent deal signed with Xinjiang’s
government.

The parent of Huadian Power International Corp Ltd aims to build 15 gigawatts of installed
generating capacity, 50 million tons of annual coal production capacity and 6 billion cubic
meters of coal to gas capacity in Xinjiang by 2020.
China in May unveiled a plan for developing Xinjiang, an energy-rich region of the country. As
part of the development plan, Xinjiang has pioneered a resource tax reform in China from
June.

RECENT TRANSACTIONS
IBM Buys Stake In Chinese IT firm
IBM has acquired a 1 percent stake in a Chinese IT and service provider for RMB50 million
($7.37 million), the Shanghai-listed firm said.

Under the deal, IBM China’s strategic stake in Bright Oceans Inter-Telecom Corp made the
United States firm the company’s third-largest shareholder, according to a statement filed to
the Shanghai Stock Ex-change.

IBM’s investment will help Bright Oceans, whose clients include China Mobile and China
Telecom, expand the business in the country which will spend more to develop its 3G
networks and is also promoting the convergence of the three networks of Internet,
broadcasting and mobile telecommunications.

Chinalco Eyes Stake In Mine In Mongolia

Aluminum Corp of China is considering buying a stake in the Oyu Tolgoi copper and gold mine
in Mongolia, touted as the world’s largest undeveloped mine deposit, according to a
regulatory filing.

China’s biggest maker of the lightweight metal, also known as Chinalco, has indicated it
would either acquire a direct ownership stake in the Oyu Tolgoi project or purchase a minority
equity stake in its investor, Canada’s Ivanhoe Mines Ltd, which holds 66 percent in the
Mongolian project, Rio Tinto said in a United States Securities and Exchange filing. The
Australian miner owns an indirect interest in the project via its 29.6 percent stake in Ivanhoe.

Report Says CNOOC On Talks To Buy BP Argentine Stake

China National Offshore Oil Corp (CNOOC), the country’s third-largest oil and gas company,
declined to comment on reports it is in talks to buy as much as $9 billion worth of BP Plc’s
assets in South America.

The State-owned Chinese energy company has expressed an interest in buying a 60 percent
stake BP owns in the Argentine oil and gas producer Pan American Energy, The Guardian
reported.

BP is looking to raise money to help pay for the clean-up operation in the wake of the oil spill
in the Gulf of Mexico, The Guardian said. CNOOC already owns 20% of Pan American through
its stake in Bridas Corp, the UK daily newspaper reported.

AgBank On Course For Record $22.1 Billion IPO

Agricultural Bank of China is set to raise up to $22.1 billion in the world’s biggest initial public
offering, underscoring the strength of investor faith in the growth of the Chinese economy.

AgBank, the last of China’s big state-owned banks to go public, has managed to complete its
offering during a period in which global markets have tumbled and dozens of IPOs have been
scrapped.

AgBank has raised a total of $10.4 billion in Hong Kong and $8.8 billion in Shanghai, totaling
$19.2 billion. A greenshoe option to boost the size of the offering by 15 percent would expand
the proceeds to $22.1bn, making it the largest IPO ever.
Given the demand for the offering – the shares were more than 10 times subscribed in Hong
Kong and more than 20 times in Shanghai – bankers say that the greenshoe is likely to be
exercised.

AgBank would like to see its listing exceed the record $21.9 billion that Industrial and
Commercial Bank of China (ICBC) raised in 2006, according to people close to the deal.

AgBank sold 25.4 billion shares in Hong Kong at HK$3.20 each, compared with an original
range of HK$2.88-HK$3.48. The bank also sold 22.24 billion shares in Shanghai at Rmb2.68
each, the top of its range.

OVERSEAS TRANSACTIONS
KBC Sells Asian Derivatives Unit For $1 Billion
Belgian banking and insurance group KBC sold its Asian derivatives unit for around $1 billion
(RM3.22 billion), as part of the restructuring it promised in return for state aid during the
financial crisis.

KBC also said it sold a Brussels-based reinsurance unit for $358.2 million.

The Belgian group sold its Global Convertible Bond and Asian Equity Derivatives businesses
to Daiwa Capital Markets, the investment banking unit of Daiwa Securities Group.

The deal will release about $200 million in capital, resulting in an increase in its tier-1 ratio of
10 basis points, KBC said.

Daiwa’s purchase of some of KBC’s operations comes as the Japanese brokerage is trying to
expand its Asian operations.

After it cut its investment banking alliance with Japanese bank Sumitomo Mitsui Financial
Group, Daiwa has shifted its focus on Asia to tap growth in the region.

Saudia Catering Unit Eyes IPO

Saudi Airlines (Saudia) is considering a bourse listing for its catering unit by March 2011,
Reuters has reported. Saudi Arabian Catering is in the process of seeking regulatory approval
to start the IPO, chief executive Christopher Parent told the news service. After the
privatization of the catering unit, the ground handling services business was supposed to
follow last year with a merger between local firms National Handling Serv-ices and Attar
Travel, but the due diligence process took more time than anticipated. “We are in the final
step to sign the agreement,” Abdulrahman Alhilali, managing director of Saudia’s ground
handling services, said. Saudia will hold 75% of the ground handling company, National Hand-
ling Services will hold 21%, and Attar Travel will hold 4%, Alhilali said.

GM Plans To File $20 Billion IPO In Mid-August

General Motors Co (GM) plans to file its nearly $20 billion initial public offering (IPO) in mid-
August, a source said, later than some expected as bankers work to help sort out the vehicle
maker’s finances post-bankruptcy.

GM was also in talks with banks for a revolving credit line worth $5 billion, sources said. Bank
of America Corp, Citigroup Inc, JPMorgan Chase & Co and Morgan Stanley had already
agreed to provide $500 million of credit each, with other banks still to be chosen, a source
said.
The credit line is expected to be finalized in the next two weeks, about a month before the
vehicle maker files for its IPO, according to a source. Earlier media reports said the IPO filing
was expected early this month.

GM, which declared bankruptcy last year, has emerged from Chapter 11 protection, and an
IPO is a key step for the company to wean itself from government support.

The vehicle maker was more likely to cut the valuation on the IPO than delay it and was
looking for a broad investor base, said one source.

The US Treasury, which owns nearly 61% of the company’s common shares after a $50 billion
bailout, planned to sell 20% to 24% of its stake or $10 billion to $12 billion worth of shares,
sources said. The sources, however, added that details of the deal were not yet finalized and
could change.

GM itself was not expected to sell shares immediately, but planned to sell about $3 billion in
mandatory convertible securities that convert into shares in the future, a source said.
Proceeds from the IPO are expected to be used to repay debt and help fund GM’s pension
liability.