Sovereign Takes Flight

The global fund Sovereign Asset Management has disappeared from Korea without a trace after walkingaway from a two-year managerial tug-of-war with SK Group with stellar profits.Sovereign sold off its remaining 7.2 percent in LG Electronics and 7.0 percent in LG Corp. inafter-hours trading at the Korea Exchange. Foreign investors bought 8.4 million shares in LGElectronics and 6.7 million shares of LG Corp. while the rest went to local investors.Sovereign sent shock waves through the Korean business sector by claiming the SK stock price wouldstagnate until the corporation's chairman Chey Tae-won resigned after it bought a controlling sharein SK Group in 2003. The fund cast doubt on Chey's qualifications, citing his arrest for insidertrading. But notwithstanding the hostile foreign takeover and evidence of slack ethics at theconglomerate, SK shareholders twice defeated Sovereign's attempts to oust Chey. The fund washed itshands of SK last month but earned a staggering W900 billion (about US$900 million) in the process,making its reclusive owners, the Chandler brothers, New Zealand's richest individuals.The fund stoked anticipation of another squabble by buying up shares in LG Group subsidiaries butleft without making more waves.The Korea Exchange said that Sovereign lost W50.2 billion in its investment in the LG businesses aslosses from LG Electronics outweighed W51.3 billion profits from LG Corp. The tax haven-basedcompany is assumed to have lost a total of W63.7 billion including losses from the exchange rate andtrading tax. That still barely dents its W921 billion net gains from SK in profits and dividends.Investors expecting the struggle over SK management to continue and drive up the share pricescrambled to buy its stocks -- and as a result the price promptly did go up. But in LG's case thegovernance structure proved too solid for such a strategy and the stock price remained steady forsix months.So was it all a ploy? Most securities experts and businesspeople dismiss Sovereign as a speculator,its ostensible commitment to corporate transparency a mere ruse. Kim Gyeong-sin, an executive withHanyang Securities, says the fact that it sold its stake in LG within less than six months "alsoproves that it is not a sincere investor who truly wants to participate in management."But some say that regardless of intent, Sovereign taught the Korean economy a valuable lesson.Without the Sovereign kerfuffle, SK would not have been forced to adopt a more shareholder-centeredmanagement and other companies would not have increased dividends for shareholders.Other SK shareholders, after all, also benefited from the rise in stock price after Sovereign camein. "We must view the Sovereign incident as a positive stimulus for the country's economy,"says ChoiHong, the president of domestic asset management firm Landmark. "Korean funds should also try toearn money by actively investing overseas."(englishnews@chosun.com )http://english.chosun.com/w21data/html/news/200508/200508230027.html

Foreign money pours in, but corporate governance lacking in China�s banks

BEIJING: Foreign investors are making headlines by pouring huge sums of money into China’s largestbanks, but it remains to be seen whether it will help improve corporate governance in the sector,analysts say.“It really takes a long time to make fundamental change,” said May Yan, vice president and senioranalyst with ratings agency Moody’s Investors.“Whether the banks eventually will be on the right track and will improve and become commerciallyviable entities - that is something that we need to wait and see about,” she said.Royal Bank of Scotland Group announced last week it is leading a consortium that will spend £1.7bn($3bn) to buy a 10% stake in Bank of China, the nation’s second largest lender.The deal is the third in as many months between foreign and major state-owned banks, followingpledges by Bank of America and Singapore’s Temasek to buy large stakes in China Construction Bank,the industry’s number three.The multi-billion-dollar acquisitions are set to continue, as the Chinese government pushes localbanks to secure foreign strategic investors ahead of planned listings in coming years.But lingering over past and future deals are the problems China’s big state-run banks have long hadwith corporate governance - and with senior executives running afoul of the law.Only days before Royal Bank of Scotland unveiled its deal, the former chief executive of Bank ofChina’s Hong Kong operation was handed a suspended death sentence for graft.“Eventually they need to improve their profitability to be able to absorb any economic, macrochanges and, fundamentally, they need to improve their corporate governance,” Yan said.“But if you’re talking about a bank with 14,000 branches around the country, it’s not easy toimplement.”Despite all the risks, no major player in the global banking business denies the need to have asignificant presence in China.“Probably the only place in the world with this kind of growth in the next 10 to 20 years is China,”said John Wadle, UBS regional banking analyst.He said partnerships allow offshore banks to build their existing businesses, including tradefinancing, but the real lure is the potential for massive expansion in the underdeveloped retailbanking and capital markets.But for the Chinese banks to become competitive with the global leaders, they need to kick some badhabits.These including excessive dependence on the state, which, backed by 1.3bn tax-payers, has avirtually unlimited ability to shore up the banks with more funds.The government has already injected $22.5bn each in Bank of China and China Construction Bank and$15bn into Industrial and Commercial Bank of China.The government hopes to clean up their balance sheets before the sector opens up fully to foreigncompetition at the end of 2006.In doing so, it has lightened their burden of non-performing loans, accrued through years ofgovernment-directed lending decisions and mismanagement.The results have been positive, according to Benny Zhang, an analyst with Asian Banker Research.“Last year, China’s banks did really well,” he said. “They had very high net profit.”But given the massive infusions of government money into the banks, the improvements in the industryare somewhat artificial, according to analysts.And until the link between government and banking sector is severed, it is a case of ‘buyer beware’for foreign banks seeking Chinese partners, they argued.“In general, our view of the Chinese banking sector is their stand-alone financial performances arerelatively weak,” Yan said.“We’re waiting to see some sustainable improvement on the banks’ side - not from externalintervention - before we move on their ratings.” – AFPGulf Times Newspaper, 2005 ©http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=49767&version=1&template_id=48&parent_id=28

Visa called for tax scam help

The Australian Taxation Office has asked the world's biggest credit card companies to helpinvestigations into offshore tax havens after ATM transactions led the agency to tax avoidanceschemes.Credit card giant Visa yesterday said the ATO had approached the organisation for help ininvestigating 3600 potentially illegal uses of credit cards to bring money held offshore intoAustralia. The tax office has enlisted the help of credit card companies and banks to gathertransaction data for offshore-issued credit cards used here.Visa said it could not assist in investigations into offshore tax havens but was assisting crimeagencies on other types of money laundering. "We told the tax office that we'd love to help but wecan't because Visa doesn't appropriate transactions in Australia," a spokesman for the organisationsaid yesterday."Visa in Australia doesn't have accounts with members of the public. Accounts are held between banksand the public, we don't know cardholders." First requests from the tax office were made in 2001,but communication was ongoing, the spokesman said.Credit card transactions helped lead investigators working on Operation Wickenby to investors inoffshore tax havens who were repatriating the funds using local ATMs.Investigators in June raided 85 premises and later began reviewing hundreds more cases involvingpotential use of offshore havens for tax avoidance but are yet to lay charges.http://www.news.vu/en/business/bankingfinance/050819-visa-called-for-tax-scam-help.shtml

Live or Retire in the Affordable Secret Caribbean

The Caribbean is synonymous with hedonism -- from the mass tourist Mecca of the Bahamas to theoff-the-beaten-path divers' paradise of Bonaire. What you might not know about the Caribbean,however, is that it's also home to one of the most appealing -- and inexpensive -- expatriate andretirement havens in the world. This little-known gem, though off the well-trodden path taken bymost travelers, has a lot to offer. So if you're longing for the good life in a tropical haven, duckthe crowds and head to Dominica.With no direct flights from North America or Europe, Dominica is welcome retreat of peace and quietin the Caribbean's sea of mass tourism. Roughly halfway between Martinique and Guadeloupe, theisland is splendidly underdeveloped. A land of waterfalls, rivers (365 of them), hot springs, andlush rain forests, Dominica is the Caribbean's most rugged isle. Instead of luxury resorts and longstretches of crowded white sand beaches, you'll find volcanic mountains, intimate beaches,little-explored reefs and small hotels.If you think that living in the Caribbean full- or part-time is a luxury only the rich and famous ofthe world can afford, think again. Unlike most of the Caribbean's islands, which cater to touristsand the high-end market, Dominica's prices are refreshingly down-to-earth. For example, right nowyou'll find:A beautiful private 1.7-acre lot with ocean views for only $37,000, and a 1/2-acre lot with oceanviews located only 15 minutes from the airport: asking price: $50,000 (located just an hour from thecapital), both perfect places for your dream home (which can be built for as little as$24,000-$40,000).A 4-bedroom fixer-upper overlooking the ocean for $97,000 or a stunning 3200-sqare foot home with4-bedrooms and 3.5 baths on 1/4 acre lot with ocean views for $229,000.A 2.15-acre riverfront lot with cocoa, coffee, grapefruit and bamboo trees on the property waitingfor your dream home for $105,000.A nice 2-bedroom home with fruit trees (pineapple, avocado, etc.) on the property, close to beachesand waterfall can be yours for only $100,000 or best offer.A fully-furnished 2-bedroom, 1-bath starter home renting for $562 a month, with stove, refrigeratorand a comfortable hammock for relaxing on the patio. Only a 15-minute drive to the capital.Outside of the costs, there are other reasons to consider Domnica, including:Fishing...snorkeling...diving in the ocean...swimming and bathing in or any of the hundreds of arearivers, waterfalls and natural hot springs...and exploring lush tropical mountains and valleys asbeautiful as anything you've seen anywhere in the world.Exotic cuisine and some of the best seafood in the world for as little as $5 per person. You canhave a variety of downright cheap fresh fruit juices and the best rum in the Caribbean for pricesstarting at $4 a bottle (a big one).First-class communications: residential telephones and cell phones are reliable and high-speedInternet access is readily available.Peace and privacy! This place has no enemies, good international relationships, some of the world'sstrictest banking secrecy laws, and is almost crime-free.Long stays as a tourist without bothering with fussy immigration, straightforward residencyrequirements and relatively simply process for obtaining citizenship and a local passport.Easy-going and friendly English-speaking neighbors, and small, intimate hotels, restaurants andbars.All this makes little-known Dominica well worth investigating.More information about living in Dominica is available in the eReport,The Caribbean's Best KeptSecret, available at: www.thegloballife.net.Phillip TownsendPhillip Townsend, an international consultant, has assisted clients with expatriate moves to over 60countries. A former correpsondent with Money magazine, he most recently wrote reports on living andretiring in Panama, Cuba and the Caribbean and is the author of the e-Book "Passport to Canada: TheComplete Guide to Living and Retiring in Nova Scotia." He edits The Global Life, a newsletter oninternational living, retirement, and travel matters. For a free sample copy, visitwww.thegloballife