. By the end of January, Merrill Lynch was seeking another capital injection.
According to a Merrill Lynch announcement, to alleviate the "anemia" caused by the massive write-downs on subprime mortgage-related losses, the company planned to issue $6.6 billion worth of preferred stock to a group of investors, including three powerful Asian investors: Korea Investment Corporation (KIC), Kuwait Investment Authority, and Mizuho Corporate Bank, a subsidiary of Japan's Mizuho Financial Group.
Previously, Merrill Lynch had announced an $8.4 billion write-down on mortgage-related losses in the third quarter, and expectations were that a similar amount would be taken in the fourth quarter.
At the end of last year, Caesars Funds, a subsidiary of DS Group, invested $5 billion in Merrill Lynch, acquiring a 9.9% stake.
This, combined with a $1.2 billion investment from Davis Select Advisors, brought Merrill Lynch's total capital injection to $6.2 billion. They also sold the majority of their commercial financing business to British Motor Group for $1.2 billion.
Just one month later, Merrill Lynch needed another $6.6 billion in financing, highlighting the severity of its losses during the subprime mortgage crisis.
According to the Wall Street Journal, Merrill Lynch's new chairman and CEO, John Thain, stated that one of his primary priorities over the past few weeks has been to maintain Merrill Lynch's strong financial position, and this transaction will ensure Merrill Lynch maintains ample capital. The
Merrill Lynch shares will be primarily sold to the Korea Investment Corporation, the Kuwait Investment Authority, and Mizuho Corporate Bank, a subsidiary of Japan's Mizuho Financial Group—the first two being government-controlled investment funds.
The shares were offered at $52.40 per share, representing the average closing price of Merrill Lynch stock for the three days prior to last Friday, and offer a 9% annual dividend.
A month ago, when Caesars Capital invested in Merrill Lynch, the corresponding share price was $48. Now, it's $52.40, making them less of a "wrongdoing."
It's worth noting that among Japan's major banks, Mizuho suffered the most losses during the subprime mortgage crisis.
Even so, the company's losses from investments in risky mortgage-backed securities in the six months ending in September of last year were only $630 million, significantly less than the billions of dollars suffered by some Western banks—though Mizuho has also stated that losses could increase.
Mizuho Corporate Bank, a subsidiary of Mizuho Financial Group, is Japan's second-largest commercial bank by market capitalization, after Mitsubishi UFJ Financial Group.
Well, they're also on the short list of Tianhe Capital's IE Fund and Rich23 Fund...
Separately, South Korea established the Korea Investment Corporation (KIC) in mid-2005 to channel some of the central bank's excess reserves into more proactive investments that the central bank is prohibited from engaging in.
By the end of 2007, the company had $20 billion in assets under management, of which $14.8 billion had been invested.
Two months ago, the South Korean government allowed KIC to invest in emerging markets and announced that it would allocate $10 billion from a foreign exchange stabilization fund to the institution in early 2008.
As for the Kuwait Investment Authority, it's an old friend of Baron's. Among the many investment funds controlled by Middle Eastern governments, KIA is the oldest and most experienced, managing over $200 billion in assets. KIA has a decades-long history of investing in Western companies, but prior to that, it had adjusted its investment strategy, beginning to explore other investments and private equity transactions.
This included investments in various funds under the DS Group.
...
In early February, Baron and his group returned to London, accompanied by his personal assistant, Zhang Junning. It had to be said that returning from the warmth of Australia to winter in London did take some adjustment. Even on their drive home, they could see the snow, as if they had instantly stepped from summer into winter.
Barron met with Brown upon his return to London.
"The sale of British Energy requires comprehensive consideration, Your Highness. After all, EDF and Centric each have their own strengths..."
Barron remained unmoved by the Prime Minister's words, saying,
"We already hold an 8% stake in British Energy, making us a major shareholder. Furthermore, the acquisition by United Energy will promote the use of clean energy, shutting down coal-fired power plants and increasing the number of natural gas-fired plants. Prime Minister, I need your support in this regard. Furthermore, I do not believe handing over all our nuclear power plants to the French is a good idea."
Indeed, his primary purpose for returning was to help United Energy win the bid for British Energy and thereby expand its power generation business.
BEC is the largest nuclear power company in the UK, operating eight nuclear power plants and one thermal power station. The British government holds a 35% stake in BEC, making it the company's largest shareholder. Therefore, the government's approval is crucial for United Energy's acquisition of BEC.
The government has set a deadline of the end of May for the sale of BEC's shares, so United Energy needs to secure government support before then.
United Energy has already acquired an 8% stake in BEC from its major shareholder, Invesco.
Their main competitors for this acquisition include EDF and Centrica. EDF
is the most enthusiastic of these two companies. Currently, the world's most advanced third-generation nuclear power technology is offered by two of the world's leading companies: the AP1000 from the Westinghouse consortium in the US and the ERP technology from Areva in France. Competition between these two technology lines is fierce.
EDF owns AREVA's ERP technology, and acquiring BEC would expand the market for this technology.
The French government currently holds over 80% of EDF's shares, hoping to leverage BEC's power plants as a gateway to build four new nuclear power plants in the UK, utilizing AREVA's technology .
For the UK, not only would divesting its BEC stake generate billions of pounds in revenue, but the country's energy shortage is also becoming increasingly acute, and the country hopes to alleviate this by building new nuclear power plants.
"We don't have to rely on French technology, Prime Minister," Barron said. "I can also work with the Westinghouse consortium to build a new, state-of-the-art third-generation nuclear power plant in the UK."
The Westinghouse consortium is backed by American capital, but Barron, of course, doesn't truly want to cooperate with them; his words are merely a ploy.
EDF already holds a significant share of the UK's electricity grid—over 30% of the country's electricity network—a sector United Energy Group is also hoping to enter.
It's worth noting that the national grid business that Li Chaoren will purchase in the UK will be purchased from EDF.