Vanguard follows Buffett's China play
Le-Min Lim and Sara Webb Bloomberg News Thursday, August 7, 2003
Mutual fund giant buys $327 million stake in China Petroleum
Vanguard Group, the second-largest American mutual fund company, has bought a stake in China Petroleum Chemical valued by the market at $327 million, four months after Warren Buffett invested in the oil company's nearest rival, an executive at the Chinese company said Thursday.
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Vanguard's Wellington Fund owns about 1.4 percent of China Petroleum Chemical, said Sang Jinghua, a Beijing-based executive of the company, which is also known as Sinopec.
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Buffett's company, Berkshire Hathaway, earlier this year said it owns at least 1.3 percent of PetroChina, Sinopec's top local rival.
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Such purchases bring "credibility to the business, whether PetroChina or Sinopec," said Ray Jovanovich, who is chief investment officer at Credit Agricole Asset Management in Hong Kong. "These investors are making a strategic bet and looking for opportunities which are attractive in terms of valuation in a global industry."
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The Vanguard purchase follows speculation that Berkshire Hathaway's purchase of PetroChina shares would spur interest in other Chinese oil businesses. Buffett has told his company's investors that he will avoid American stocks because they are too expensive.
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Vanguard's Wellington Fund now owns about 1.2 billion, or about 7 percent, of Sinopec's Hong Kong-traded shares, said Sinopec's Sang. That is worth about 2.55 billion Hong Kong dollars, or $327 million, at current prices. Vanguard's fund is Sinopec's fourth-largest non-state investor, lagging Exxon Mobil, Royal Dutch/Shell Group and BP.
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"This fund has been buying our shares the last few months," said Sinopec's Sang. Sinopec has 86.7 billion shares, about 20 percent of which can be bought and sold without Chinese government's approval.
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China Petrochemical Group owns about 55 percent of Sinopec; China Development Bank and China Xinda Asset Management, a state-run fund management company, each owns about 10.1 percent of the company, said Sinopec's Sang. None of these can be traded without approval from the Chinese government.
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China Orient Asset Management, another state-controlled fund manager, owns 1.3 billion shares.
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Vanguard's Wellington Fund, managed by Boston-based Wellington Management, was the first "balanced fund" and was started in 1929. Vanguard took over the fund from Wellington Management in 1975. The fund invests between 60 percent and 70 percent of assets in shares of companies valued at more than $5 billion. The rest of the assets are allocated to government and investment-grade corporate bonds with one to 30-year maturities.
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