Players in China Telecom re-org: foreign investment banks

I planned to write more about China telecom re-org (revamp, reform) after the recent announcement. Now the CFA test is over, I have more time to think about this.

A few days ago I read this interesting Chinese article which describes some foreign investment banks actions after the re-org news (Appendix). Let me try to explain in simple words. The China telecom re-org is widely anticipated to happen this year, the conventional wisdom is the decesion will be made after August Beijing Olympics. Those investment banks created many warrants (European options) in HKSE with expiration date in August, thinking the annoucement of re-org will make the China Mobile, China Unicom, China Telecom and China NetCom stocks trades in Hongkong have a big swing. They can make money from that.

On May 23, Chinese goverment made the official announcement unexpectedly. The China Unicom, Telecom and NetCom suspended trading for a week or so. Those IB guys have to react. How do they do that? Issue cautious notes or downgrade China Mobile, issue postive notes or upgrade on the other three (while their trading are suspended). People got nervous about China Mobile and bail out, the stock (0941.HK) tank, and the IB guys made money from earlier put positions, and they may also get some calls cheap. A few days later, when the other three stocks resumed trading, they reversed their positions: become bullish on China Mobile 0941, and bearish on the other three, and made another round of money. Who is losing the money? Those poor guys who followed the advice of foreign investment banks did.

One may wonder how could this kind of thing happen? Well, as we know there is no Elliot Spitzer in Hongkong, and not to mention Spitzer himself has already been stripped of power (personal scandal).

Appendix: quote the Chinese article 中国联通“惨案”内幕:国际知名投行导演

首先是一些大型的国际投资机构,最近一段时间大量出具看空联通的报告,而在电信重组方案公布以前,基本都是看多的。先前市场预计的电信重组方案同公布的其实并无实质性差别,究竟是什么“风”让投行们“转了舵”?答案很简单:利益。

  有人可能会问,如何能通过沽空联通获利?其实,更准确点说应该是为了减少损失,原因在于,那些投行大佬们在此之前创设了大量中国联通认购权证。截至2008年6月,各大投行发行的联通权证共13只,更奇怪的是,这13只权证全部是认购权证,且到期日从2008年6月到12月不等,2008年8月31日前到期的最多,一共有8只。这些大佬的身影人们一定不会陌生,荷兰银行、花旗银行、德意志银行、汇丰银行、瑞士银行……而且,创设数量相当惊人,比如一个叫中联麦银八零九A的权证,创设的数量便高达3.92亿份。

  有必要说明一下香港的权证创设制度。目前内地的做法是要求每发行一份权证需要全额担保抵押,而港股目前的权证创设制度是,仅设定发行人的资格门槛,不对发行人避险交易进行控制,而且,没有刻意规定权证注销制度,权证交易中采取的是做市商制度。从投资者的角度而言,权证投资者倾向于在临近到期时把权证卖给发行人,以便锁定利润或止损。

  显然,一旦复牌交易后中国联通股价飙升,权证发行商在未来几个月必将损失惨重。因此,只有不断在消息面放空,在正股上做空,才能达到其不可告人之目的。

有评论认为,造成如此这般的原因,是这些国际大行错误估计了电信重组的日期。他们都预期重组至少要到奥运会之后,因此把权证到期日多数设在今年9月份之前。出乎他们意料的是,此次电信重组在多次“狼来了”之后,突然真的来了,闹剧因此开演。

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