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China wealth fund denies reports of Spanish bank investment

Source: Reuters - Thu 14th Apr 2011

China Investment Corp, the country's sovereign wealth fund, on Thursday denied reports that it was studying a $9 billion investment in Spanish banks. "The reports are groundless and are not in line with the truth," a CIC official, speaking on the condition of anonymity, told Reuters.

A Spanish government source said on Wednesday that Chinese investors may inject $13 billion into Spanish banks after Spain's premier met top Chinese officials in Beijing.

Of this total, CIC was said to be looking at a $9 billion investment.

That would be a staggering amount by CIC's standards, nearly double its largest single investment to date, a $5 billion stake in Morgan Stanley acquired in 2007. Jesse Wang, an executive vice president with CIC, said earlier this year that the wealth fund had fully used its allocation of cash for foreign investments. It was counting on getting a fresh infusion of money from the government, he said.

It was not clear what terms would make the risk of a hefty investment in Spanish banks attractive to China. CIC has invested cautiously in overseas financial markets in the last couple of years partly to avoid any criticism it is squandering reserves after recording large paper losses on investments made prior to the global financial crisis.

Concerns about delays in recapitalising Spain's ailing savings banks -- heavily exposed to bad loans from a burst property bubble -- have overshadowed the euro zone state's efforts to convince markets it will not need a bailout.

According to official estimates, the savings banks - which are known as cajas and hold about half the deposits in Spain's financial system - need about 15 billion euros in fresh funding to meet strict new financial targets.

But private estimates go eight times higher than that when taking into account future losses from real estate writedowns.

Spanish Prime Minister Jose Luis Rodriguez Zapatero is visiting China and Singapore this week, meeting with officials and fund managers to persuade them that Spain's sovereign bonds and its financial system are a good investment.

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