China CIC to pay dividends, not interest

China Investment Corp, a $200 billion sovereign wealth fund, has agreed with the Finance Ministry to change the way it pays its funding costs, local media reported Saturday.

To fund CIC, the Finance Ministry issued 1.55 trillion yuan ($226.9 billion) worth of special treasury bonds at an annual rate of 4.3 percent in late 2007 to buy foreign exchange from the central bank.

This means CIC has to pay about 66.65 billion yuan ($9.76 billion) in interest each year. But due to heavy paper losses from two high-profile overseas investments made before the financial crisis, CIC has been postponing the interest payment to its State shareholder.

CIC has reached a consensus with the Finance Ministry to treat the $200 billion as its asset rather than debt, and the firm will pay dividends to the State instead of interest, just like other top State-owned enterprises (SOE), the Economic Observer cited a CIC source.

China’s State Asset Supervision and Administration Commission started collecting dividends last month from the 136 central SOEs it oversees, the paper said.

SOEs in tobacco, oil, chemical and power industries must pay 10 percent of their capital returns to the State while those in steel, transportation and electronics businesses pay 5 percent.

But Beijing has yet to decide how much State financial firms, into which category CIC falls, should pay. Based on an assumption of 5 percent, CIC will pay its State shareholder 68.3 billion yuan ($10 billion), the CIC source told the paper.

Reuters
 

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