Asian Stocks Fall, led by Banks on Capital Concern; BHP Surges

By Jonathan Burgos and Shani Raja

March 9 (Bloomberg) -- Asian stocks declined as Shinsei Bank Ltd. sought to raise capital, offsetting advances by commodity companies on higher oil and copper prices.

Shinsei Bank Ltd., the Japanese lender partly owned by investor Christopher Flowers, slumped 7.5 percent after saying it plans to sell preferred securities. Honda Motor Co. Ltd., which gets half of its sales from North America, dropped 2.8 percent after U.S. unemployment jumped to the highest level in more than a quarter century. BHP Billiton Ltd., the world’s biggest mining company, climbed 5 percent in Sydney.

The MSCI Asia Pacific Index lost 0.7 percent to 71.48 as of 10:50 a.m. in Tokyo, with finance companies accounting for half the drop. The gauge has fallen 20 percent this year, extending last year’s record 43 slump as the global recession pummeled profits at companies including BHP and Honda.

“There’ll be a point when things do start to stabilize, but it’s hard to say where that level is,” said Paul Xiradis, who manages the equivalent of $8 billion as chief executive officer of Ausbil Dexia Ltd. in Sydney. “There are still enough things to worry about.”

Japan’s Nikkei 225 Stock Average fell 0.4 percent to 7,144.62, while Hong Kong’s Hang Seng Index lost 0.4 percent. Australia’s S&P/ASX 200 Index rose 0.2 percent.

Futures on the Standard & Poor’s 500 Index gained 0.2. The gauge rose 0.1 percent in New York on March 6 as energy stocks rallied on gains in crude oil. Gains were limited as a lower sales forecast for Apple Inc. added to concerns the global slowdown and credit turmoil will continue to erode profits.

U.S. Unemployment

“I don’t see the U.S. economy getting better for a long time,” Jim Rogers, chairman of Singapore-based Rogers Holdings, said in an interview today. “I hope the U.S. recovers in two years. That will be good news. It could be 10 years.”

Shinsei Bank slumped 7.5 percent to 74 yen in Tokyo. The lender announced the plan to sell preferred securities, without specifying the amount, after trading closed on March 6.

The company joins larger banks including Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. in raising capital as losses on investments sap their financial strength.

Mitsubishi UFJ, Japan’s biggest bank, lost 2.5 percent to 391 yen. Mizuho Financial, the country’s second-largest bank, fell 2.3 percent to 172 yen.

Honda Motor, the nation’s second-biggest automaker, declined 2.8 percent to 2,090 yen on concern demand in the U.S. will slow. Nissan Motor Co., Japan’s No. 3 automaker, dropped 3.1 percent to 316 yen.

The U.S. unemployment rate climbed to 8.1 percent in February, the Labor Department said on March 6, while economists had estimated 7.9 percent. Employers eliminated 651,000 jobs last month, and losses have now exceeded 600,000 for a third- straight month, the first time that’s happened since the tally began in 1939.

BHP, Australia’s largest oil producer, gained 5 percent to A$29.04. Rio Tinto Group, the world’s third-biggest mining company, climbed 4.6 percent to A$47.82.

Crude oil jumped 4.4 percent to $45.52 a barrel in New York on March 6, the highest settlement in almost six weeks. Copper added 2.2 percent.

To contact the reporters for this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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India’s Sterlite Agrees to Buy Asarco’s Assets for $1.7 Billion

By Debarati Roy and Steven Church

March 7 (Bloomberg) -- Sterlite Industries (India) Ltd., India’s biggest copper producer, agreed to buy Asarco LLC, a bankrupt copper miner, for $1.1 billion in cash and a promissory note worth $600 million for its first purchase in North America.

That is less than the original $2.6 billion offer, which Sterlite withdrew last year, saying that price was too high amid a decline in the price of copper.

Asarco, based in Tuscon, Arizona, filed for bankruptcy in 2005 and today faces $7.9 billion in claims. The company’s main creditors are government agencies seeking payment for environmental cleanup and individuals who say they were damaged by asbestos-based products of an Asarco unit.

“We are happy that we have reached an agreement with Asarco on these new terms,” Anil Agarwal, Sterlite’s chairman said in an e-mailed statement in Mumbai. “This acquisition is in line with our strategy of leveraging our existing skills to become a diversified global copper producer and creating long term value for shareholders.”

Under the proposed sale, Asarco can continue to search for a higher bid until the deal is approved by a bankruptcy court judge in Corpus Christi, Texas. That approval should happen by April 15, Asarco said in a statement.

After the approval, the company would still be able to accept any superior offer that came to it, Asarco said.

“It is satisfying to see months of negotiations finally bear fruit,” Asarco Chief Executive Officer Joseph F. Lapinsky said in a statement.

Boom’s Ending

Asarco’s mines hold about 5 million tons of reserves. The 110-year-old company produced 235,000 tons of refined copper in 2007.

The end of the six-year commodity boom, which helped metal companies deliver record profits, has slashed mine values. BHP Billiton Ltd., the world’s largest mining company, scrapped an offer for rival Rio Tinto Group in November because of the credit-market turmoil.

Copper prices have fallen by more than half from their record in April to $3,720 a metric ton in London. The metal will average $3,411 a ton this year, Standard Chartered Plc said in a Feb. 6 report.

Sterlite said in a statement that payments made on the $600 million note could increase if the price of copper exceeds $6,000 a ton. The company said it would pay the note over nine years.

‘Good Deal’

“Under the current scenario this is a good deal,” Rakesh Arora, an analyst at Macquarie Group Ltd. in Mumbai said in a phone interview. “This will help Sterlite reduce costs and raise production.”

Sterlite’s American depositary receipts declined 0.4 percent to $4.71 in New York Stock Exchange composite trading before the announcement. The company’s shares in India rose 1.9 percent to 250.2 rupees yesterday, while shares of London-based parent Vedanta Resources Plc rose 7 pence to 530 pence.

Sterlite’s original offer was the centerpiece of the plan by Asarco’s managers to reorganize, pay creditors most of what they are owed and allow the company to leave court supervision intact after four years in bankruptcy.

Asarco’s parent, Grupo Mexico SAB, would benefit from the sale “as long as the company is bought in full, and all liabilities are canceled in full,” Rodrigo Heredia, an analyst with Ixe Casa de Bolsa SA in Mexico City said last month. A sale may end Grupo Mexico’s exposure to any asbestos lawsuits against Asarco, Heredia said.

Bankruptcy Filing

Grupo Mexico put Asarco into bankruptcy in 2005 and lost control of the unit when a judge appointed an independent board. Since then, Grupo Mexico has feuded with Asarco managers and tried unsuccessfully to persuade U.S. Bankruptcy Judge Richard Schmidt to give back control of Asarco.

Sterlite, Asarco and a unit of Grupo Mexico were ordered into mediation last year by the judge overseeing the bankruptcy case. Before copper prices plunged last year, Grupo Mexico said it was willing to pay $2.7 billion to ensure that Asarco’s creditors would be paid in full.

In January, Grupo Mexico said it was no longer willing to pay creditors in full to win back control of Asarco. The company’s attorney, Jorge Lazalde, said at the time that Asarco’s creditors should expect only “cents on the dollar” for their claims because Asarco isn’t worth any more than $200 million under current conditions.

Asarco’s biggest debts are tied to the clean-up of environmental damage and to paying victims of asbestos-based products. Asbestos fibers, which were used to make insulation, can lodge deep in the lungs and cause a variety of respiratory ailments.

Asbestos Exposure

Environmental and asbestos creditors supported the original Sterlite plan because it included a settlement that would have paid them at least $2.1 billion. Those creditors include government agencies trying to clean up pollution left by Asarco’s mining and individuals who claim they were harmed by an Asarco affiliate’s asbestos products. Those two groups claim they are owed $5.2 billion.

“Sterlite will assume operating liabilities but not legacy liabilities for asbestos and environmental claims for ceased operations,” the company said. “The consideration being paid is toward the gross fixed assets and working capital of Asarco.”

The case is re Asarco LLC, 05-21207, U.S. Bankruptcy Court, Southern District of Texas (Corpus Christi).

To contact the reporters on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net; Debarati Roy in Mumbai at droy5@bloomberg.net.

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Lloyds Said to Cede Control to U.K. to Tap Government Insurance

By Gonzalo Vina and Jon Menon

March 7 (Bloomberg) -- Lloyds Banking Group Plc, Britain’s biggest mortgage lender, will cede control to Prime Minister Gordon Brown’s government in exchange for tapping a guarantee program backing 260 billion pounds ($367 billion) of assets, two people familiar with the plan said.

Lloyds will convert preference shares into ordinary stock, paying about 16 billion pounds to participate in the program, according to the people, who declined to be identified before a formal announcement later this morning.

The bank, which will be up to 75 percent owned by the government, is the fourth to tip into the Treasury’s hands since the run on Northern Rock Plc in September 2007 prompted Brown to take unprecedented powers to seize failing institutions.

Brown has tightened his grip on British banks since October, when he pledged 37 billion pounds to recapitalize Lloyds and Royal Bank of Scotland Group Plc. While that cash kept the industry out of bankruptcy, it hasn’t bolstered lending to consumers, exacerbating the recession. Brown, his popularity tumbling, now says he wants to reshape the industry.

“What makes me angry is that good people, hard-working people are being squeezed by banking mistakes and that’s why we need the urgent clear-up and clear-out in our banking system,” Brown told supporters of the ruling Labour Party yesterday in Dundee, Scotland.

Lending Commitments

Lloyds today also will give legally binding assurances that it will increase mortgage and business lending, the people said. RBS already is majority owned by the government, and Northern Rock and Bradford & Bingley Plc were nationalized last year.

The company also may come under more pressure to limit pay and bonuses to executives and traders as RBS has agreed to do in exchange for government cash. Treasury officials are seeking legal advice on how to limit a 703,000-pound-a-year annual pension granted to Fred Goodwin, who resigned as chief executive of RBS when it sought a government bailout.

Parts of the Lloyds plan were still being worked out last night, according to the people. One person said the government voting rights will rise to 60 percent, though Treasury officials and bank executives had yet to agree an exact figure.

The Treasury held a 43 percent stake in Lloyds since it combined with HBOS Plc in January in a government-brokered deal aimed at preventing the collapse of the U.K. banking industry. The company posted 7.5 billion pounds of losses for 2008 but until now has resisted attempts to increase the state’s holding.

RBS Agreement

Brown’s government, which on Feb. 26 agreed to insure 325 billion pounds of RBS’s assets, is using the asset protection plan to increase lending and kick-start the economy. The Bank of England on March 5 said it would pump as much as 150 billion pounds of new money into an economy facing its worst recession since World War II.

Lloyds has declined 66 percent in London trading this year, making it the worst performer in the five-member FTSE 350 Banks Index. The lender is now valued at 7.1 billion pounds.

Chief Executive Officer Eric Daniels last month said the bank would have liked to have taken more time to examine HBOS’s accounts before agreeing to buy the bank last September. Lloyds wouldn’t have needed taxpayers’ money if it hadn’t agreed to the government-brokered deal, Daniels said.

About 80 percent of Lloyds’ potentially “toxic” loans come from HBOS, according to Sandy Chen, an analyst at Panmure Gordon & Co. in London. Those included 56 billion pounds of asset-backed securities and about 6 billion pounds of monoline- insured credit at the end of 2008, he said.

Lloyds’ Losses

Lloyds also has 89 billion pounds of commercial property loans, 112 billion pounds of lending to non-bank financial companies and a 372 billion-pound mortgage book.

The Treasury last week agreed to insure RBS assets in return for 6.5 billion pounds paid in the form of preference shares paying 7 percent interest. The government will also buy 13 billion pounds the non-voting shares, with RBS having the option to sell an additional 6 billion pounds.

The government waived competition rules to allow Lloyds to buy HBOS for about 7.7 billion pounds and create a bank with 3,300 branches, 140,000 employees and 28 percent of Britain’s mortgage market. The companies received a total of 17 billion pounds from the government last October, in return for the initial shareholding.

Lloyds may sell assets and cut jobs as it integrates HBOS and tries to reach a target of cutting 1.5 billion pounds of costs by 2011.

To contact the reporter on this story: Gonzalo Vina in Westminster at gvina@bloomberg.net; Jon Menon in London at jmenon1@bloomberg.net

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BNP to Buy 75% of Fortis Bank With Belgian Guarantees

By John Martens

March 7 (Bloomberg) -- BNP Paribas SA, France’s biggest bank, agreed to buy Fortis’s former banking units in Belgium and Luxembourg and take a stake in the insurance business after obtaining state guarantees on potential losses.

BNP Paribas will buy 75 percent of state-owned Fortis Bank NV and gain control of the Luxembourg banking unit for 2.88 billion euros ($3.64 billion) in stock, the Belgian government said today in a statement. Fortis Bank will then pay 1.38 billion euros cash for 25 percent of Fortis Insurance Belgium SA.

The French bank will become the biggest by deposits in Belgium and Luxembourg, two of Europe’s wealthiest nations, if it wins over Fortis investors. Belgium is seeking to sell the Fortis banking operations after the September collapse of Lehman Brothers Holdings Inc. and the freezing of credit markets triggered state bailouts of Fortis and Dexia SA.

“The Belgian government is likely eager to make the deal work,” Albert Ploegh, an analyst at ING Wholesale Banking in Amsterdam, wrote in a note yesterday. “If the guarantees are such that they cannot offload enough risks associated with Fortis Bank, there is no incentive to sell the operations.”

Under the new agreement, the Belgian government will provide 740 million euros of equity funding to a company created to split off 11.4 billion euros of risky assets into a separate entity. BNP Paribas will contribute 200 million euros to the risky-asset entity and Fortis will provide 760 million euros.

Guarantees

Fortis Bank will contribute the remaining 9.7 billion euros in debt funding, backed by a 4.36 billion-euro guarantee from Belgium. The structured-credit investments have been marked down to about 58 percent of par value, Belgian central bank Deputy Governor Luc Coene told reporters in Brussels.

BNP Paribas also obtained a 1.5 billion-euro state guarantee on losses exceeding 3.5 billion euros on the structured-credit holdings that remain within Fortis Bank.

“This solution guarantees the bank’s safety and future,” BNP Paribas Chief Executive Officer Baudouin Prot told reporters in Brussels. “And I think this is very important for the Belgian economy at a time when its banking industry is going through a difficult period.”

Fortis shareholders blocked an earlier agreement to sell units to BNP Paribas on Feb. 11. Once Belgium’s largest financial-services company, Fortis will emerge from the state- organized breakup as an insurer with the right to potential gains on Belgium’s stake in BNP Paribas.

Shareholder vote

Fortis will put the new agreement to a shareholder vote in April. Meetings may be scheduled on April 8 in Brussels and the following day in the Dutch city of Utrecht, Fortis Chairman Jozef De Mey told reporters.

All Fortis investors will be able to vote on the transaction, Chief Executive Officer Karel De Boeck said. At the Feb. 11 meeting, only those investors who held Fortis shares as of Oct. 14 were eligible to cast ballots following a December court injunction blocking the asset sales.

Fortis became a casualty of the global financial turmoil after spending 24.2 billion euros buying ABN Amro Holding NV assets in the biggest bank takeover just as the U.S. subprime- mortgage market collapsed and credit markets froze.

The bank and insurer was forced to sell most of its businesses over three days last October after running out of short-term funding and seeing its share price plummet.

The Netherlands bought Fortis’s Dutch banking and insurance businesses for 16.8 billion euros on Oct. 3. Finance Minister Wouter Bos plans to merge ABN Amro and Fortis Bank Nederland (Holding) NV and may list or sell the bank by 2011. The Dutch insurance business won’t be integrated and may be sold earlier.

Capital Ratios

Belgium nationalized Fortis Bank for 9.4 billion euros in two transactions on Sept. 29 and Oct. 10, and Luxembourg agreed to take 49.9 percent of the banking unit in that country, which was renamed Banque Generale du Luxembourg SA on Dec. 22, by converting a loan into shares.

The purchase of Fortis Bank won’t improve BNP Paribas’s capital adequacy ratios as originally planned. The Belgian bank said yesterday it had a fourth-quarter net loss of 6 billion euros, based on preliminary figures.

“It was an absolute minimum for us that the transaction would be neutral for our capital ratios,” BNP Paribas Chief Financial Officer Philippe Bordenave said in an interview today in Brussels.

BNP’s Tier 1 capital ratio, a measure of a bank’s ability to absorb losses, stood at 7.8 percent on Dec. 31. That compares with 9.1 percent at Credit Agricole SA and 8.8 percent at Societe Generale SA, France’s second- and third-largest banks. Fortis Bank’s Tier 1 ratio was “about 10 percent,” the state- owned Belgian bank said yesterday.

Debt Protection

Belgium also agreed to shore up Fortis Bank’s capital to a maximum of 2 billion euros should the lender’s Tier 1 ratio fall to less than 9.2 percent. The capital infusion could raise the government’s stake in Fortis Bank to as much as 49.9 percent.

The cost of protecting Belgian government debt from default soared 44 basis points to 154 in the five days following Fortis shareholders’ rejection of the breakup on Feb. 11, according to CMA Datavision prices in London. A basis point on a credit- default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Belgium has the third-highest debt as a percentage of gross domestic product in the euro region. Last year’s bailouts of Fortis, Dexia, KBC Group NV and mutual insurer Ethias Group increased debt to 88.7 percent of GDP from 83.9 percent at the end of 2007, according to preliminary figures published by Belgium’s central bank last month.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. An increase signals deterioration in the perception of credit quality.

To contact the reporter on this story: John Martens in Brussels at jmartens1@bloomberg.net

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South Korea’s Lee Says Nation Has Means to Stabilize Currency

By Kevin Cho

March 7 (Bloomberg) -- South Korea has the means to stabilize its currency, President Lee Myung Bak said today.

“Fundamentally, the government believes there are factors to which the won can be stabilized,” Lee told South Korean businessmen in Indonesia, according to a pool report on the presidential office’s Web site. “Korea, Japan and China are maintaining dialogue to help each other when things are difficult,” the report cited Lee as saying, without elaboration.

Korea’s won has declined 39 percent against the U.S. dollar in the past 12 months, the biggest drop among the 10 most-traded Asian currencies outside Japan, amid concern global financial turmoil may leave the nation’s banks short of funds needed to service overseas debt.

South Korea expanded currency swap arrangements with China and Japan in December in an effort to ensure financial stability in Asia. South Korea and Japan increased an existing won-yen arrangement to $20 billion from $3 billion.

To contact the reporter on this story: Kevin Cho in Seoul at kcho2@bloomberg.net

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CNPC Forecasts 2009 Average Crude Oil Price at $40 Per Barrel

By Winnie Zhu

March 7 (Bloomberg) -- China National Petroleum Corp., the nation’s biggest oil producer, forecasts average crude oil prices in 2009 will be $40 per barrel, Vice President Yu Baocai told reporters in Beijing today.

CNPC, the parent of PetroChina Co., will cut its oil and gas output this year from 2008 levels because of weaker demand, he said at a meeting of the National People’s Congress, without elaborating.

CNPC has cut its diesel yield from year-earlier levels to use the capacity for gasoline output, Yu said, without providing figures.

To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net

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Asian Currencies: Won, Rupee Lead Weekly Drop on Risk Aversion

By Lilian Karunungan

March 7 (Bloomberg) -- South Korea’s won and the Indian rupee led declines in Asian currencies this week on speculation investors will stay away from emerging-market assets as the global financial slump deepens.

The won posted its fifth weekly drop, approaching an 11- year low, on concern that global market turmoil will make it difficult for banks to raise funds needed to service overseas debt. The rupee reached a record low on March 3 as the benchmark stock index slumped and overseas funds increased sales of local equities. Malaysia’s ringgit slid for the fourth week as a government report showed exports tumbled the most in 15 years.

“I am bearish on all Asian currencies, like the Singapore dollar, the Korean won, the Indonesian rupiah, the Malaysian ringgit and the Philippine peso,” said Ken Hirose, a portfolio manager in Tokyo at Nikko Asset Management Co., which oversees the equivalent of $109 billion in assets globally. “All of them should be much weaker against the U.S. dollar because globally everybody is unwinding their positions.”

The won fell 1 percent this week to 1,550 per dollar at the 3 p.m. local close, according to Seoul Money Brokerage Services Ltd. The currency touched 1,597, the lowest since 1998. The rupee declined 1.1 percent to 51.7025 in Mumbai. The rupiah dropped 0.9 percent this week and traded at 12,090 in Jakarta, according to data compiled by Bloomberg.

China, Taiwan and the Philippines will report export data next week, with economists in a Bloomberg survey expecting no change for China and a contraction for Taiwan. Policy makers at the Bank of Korea will also meet next week after cutting the benchmark interest rate to a record-low 2 percent last month.

Tough Spot

The Korean currency declined 19 percent so far this year, the worst among the 10 most-traded currencies in Asia outside Japan. The government plans to sell as much as $1 billion of global bonds this month, online news agency MoneyToday reported yesterday, citing unidentified officials. The Ministry of Strategy and Finance said it hasn’t determined the sale’s “timing or size.”

“Investors are on a very tough psychological spot as global turbulence is showing no signs of abating,” said Park Sang Bae, a currency dealer with Industrial Bank of Korea in Seoul. “March is a difficult month for the won due to dividends paid to foreign share holders and sizable debt set to mature.”

The Kospi stock index fell for a fourth week, tracking a slump in the Standard & Poor’s 500 Index to the lowest level since 1996.

South Korean banks had $92.6 billion of foreign debt as of Jan. 31, including $38.3 billion maturing by the end of this year, according to data provided on Feb. 27 by the Bank of Korea. The foreign debt included loans, bonds and other securities, the central bank said.

Fund Sales

Overseas investors increased sales of Indian equities in the first three days of this week. They sold an average $130.4 million more than they bought, compared with $83.9 million last week, data from the Securities & Exchange Board of India show.

Net sales by foreign funds reached $2.1 billion this year, adding to a record $13.3 billion in 2008. The rupee has weakened 5.7 percent this year.

The Philippine peso touched its lowest level in three months this week on concern remittances from overseas Filipino workers and exports will slide. Nikko Asset Management Co., HSBC Holdings Plc and Royal Bank of Scotland Plc say the Philippine peso will depreciate.

Remittances Concern

Remittances, which reached a record $16.4 billion last year, probably will fall 20 percent this year, according to HSBC, Europe’s largest bank by value. RBS predicts remittances will drop 8 percent, even though central bank Governor Amando Tetangco said Feb. 25 he expects no change.

The peso has lost 2.1 percent this year. It rebounded to 48.52 a dollar yesterday, after touching 49.26 on March 3 in Manila, the lowest level since Dec. 9, according to Tullett Prebon Plc.

Taiwan’s dollar rose, snapping a three-week slump, as China proposed an economic accord. Premier Wen Jiabao said this week that China wants to accelerate normalization of cross-straits trade relations.

“Political risk declined in Taiwan as it seems China is really intent on improving the relationship,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong. “There’s some relief in the currency market.”

Taiwan’s dollar strengthened 0.5 percent this week to NT$34.780 against the U.S. currency, according to Taipei Forex Inc. The currency will fall to NT$36 at the end of March, SJS’s Kowalczyk said.

Malaysia’s ringgit touched the lowest level in more than three years yesterday as a trade ministry report showed overseas shipments dropped 27.8 percent in January from a year earlier, after slipping 14.9 percent in December.

The ringgit dropped 0.4 percent this week to 3.7175 a dollar, according to data compiled by Bloomberg. The currency reached 3.7390, the lowest since February 2006.

Elsewhere, the Thai baht traded at 36.07 versus 36.15 last week and Vietnam’s dong was little changed at 17,481.

To contact the reporters on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net

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Anhui Conch Plans to Spend $2.9 Billion for Expansion

By Helen Yuan

March 7 (Bloomberg) -- Anhui Conch Cement Co. plans to spend at least 20 billion yuan ($2.9 billion) in five years, adding 10 million metric tons of capacity each year.

The company will focus on building plants in China’s southwestern provinces and cities including Sichuan, Chongqing and Shaanxi, Guo Wensan, the general manager of the company, told reporters today in Beijing where he’s attending the National People’s Congress. It had more than 130 million tons of capacity last year.

China has announced that it plans to spend 4 trillion yuan ($585 billion) to stimulate the economy, including funding for roads, bridges and railways, raising optimism the investment will help shield the world’s third-largest economy from recession that has taken hold in the U.S., Europe and Japan.

“The spring (for the cement industry) is coming,” Guo said.

The company will focus on expansion rather than domestic acquisitions, Guo said. Still, the company is looking for overseas purchases amid the financial crisis that has made possible targets cheaper, he said, without elaborating.

To contact the reporter on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

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Japan’s Bonds Complete Worst Week in a Month on Supply Concern

By Yasuhiko Seki

March 7 (Bloomberg) -- Japan’s 10-year bonds posted the biggest weekly decline in a month on concern the U.S., Japan and Europe will increase spending to help counter the deepening global recession.

Benchmark yields approached a four-week high as Chief Cabinet Secretary Takeo Kawamura said the government needs to make the “utmost effort” to prevent stocks from collapsing, spurring concern the nation’s debt burden will increase. Sales of government bonds will rise to 113.3 trillion yen ($1.17 trillion) in the year starting April 1 from 106.3 trillion yen this financial year, the Ministry of Finance said in December.

“Given the severe state of the Japanese economy, the government may need to boost budget spending by an additional 15 to 20 trillion yen,” said Hirokata Kusaba, a senior economist in Tokyo at Mizuho Research Institute Ltd., a unit of Japan’s second-largest bank. “The issuance of new bonds may increase by 30 trillion yen, boding ill for the debt market.”

The yield of the benchmark 10-year bond rose two basis points to 1.29 this week at Japan Bond Trading Co., the nation’s largest interdealer debt broker, the biggest increase since the five days ended Feb. 6.

Ten-year bond futures fell 0.86 to 138.64 in Tokyo and touched 138.49, the lowest since Feb. 10.

‘Much Worse’

Ten-year bonds gained yesterday, pushing yields down two basis points, after Finance Minister Kaoru Yosano told reporters that Japan’s economic data has been “much worse” than expected and the government will soon need to revise its forecast for gross domestic product.

The world’s second-biggest economy shrank an annualized 12.7 percent last quarter, the government said Feb. 16, the biggest contraction since the 1974 oil crisis. Capital spending excluding software dropped 18.1 percent in the three months ended Dec. 31, the seventh quarter of declines, a separate government report showed on March 5.

A Cabinet Office report on March 11 may show machinery orders slumped 40.2 percent in January from a year earlier, according to a Bloomberg News survey.

Signs of a deepening recession dragged the Nikkei 225 Stock Average down 5.2 percent this week. Ten-year yields had a correlation of 0.7 with the Nikkei in February, Bloomberg data show. A value of 1 would mean the two moved in lockstep.

“While falling stocks normally push yields down, we need to be alert to the risk that Japanese financial institutions, which suffered heavy equity losses, will sell bonds to generate profits before the fiscal year ends this month,” said Chotaro Morita, chief strategist at Barclays Capital Japan Ltd. in Tokyo. “Such selling of bonds may emerge as the Nikkei 225 comes closer to or falls below 7,000.”

General Motors

Bonds also fell this week on speculation the U.S. will boost spending to support the economy. General Motors Corp. slid 15 percent after its auditor said the automaker may not survive.

GM executives, who last year warned bankruptcy-based reorganization would have a catastrophic effect on customer confidence, are now more open to the idea of a structured bankruptcy, the Wall Street Journal reported yesterday, citing a person familiar with the company’s thinking.

“Talk of the failure of GM and the nationalization of more banks in the U.S. mean that the government will increase its involvement in addressing these issues,” said Yasuhide Yajima, senior economist at NLI Research Institute Ltd. in Tokyo. “Policy action increases the risk of bigger debt sales.”

The difference in yield between 10-year government debt in the U.S. and Japan widened to 153 basis points yesterday from 149 basis points the previous day. A basis point is 0.01 percentage point.

“There is only a marginal yield spread between Japan and overseas countries,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of the French asset management firm that supervises the equivalent of $338 billion globally.

To contact the reporter on this story:
Yasuhiko Seki in Tokyo at
Yseki5@bloomberg.net.

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