Tag Archives: Warren Buffett

Buffett’s Ups and Downs With BYD

As a snapshot of global financial markets’ ups and downs, look no further than U.S. billionaire investor, Warren Buffett. In 2008, he paid $231 million for a 10% stake in BYD Co., China’s largest maker of rechargeable batteries and whose chairman, Wang Chuanfu, nurtured a dream of making electric cars. BYD’s F3 sedan was China’s best-selling marque in 2009 and 2010, but its hybrid F3DM and e6 electric model have not met with similar success and the company has had to delay the U.S. launch of the e6 until 2012. The company’s share price fell by 14% on Tuesday in the wake of a third-quarter profits warning. The value of Buffett’s stake is now down by $2 billion from its peak in October 2009, though still double what he paid for it.

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BYD Fined, Loses Factories For Illegal Land Use

We now have a decision in the widely watched case of illegal land use involving BYD, the fast-growing compact automaker in which American investor Warren Buffett has a 10% stake. The Ministry of Land and Resources has announced that BYD is being fined 2.95 million yuan ($443,000) and that the seven factories the company built in Xian on 49 hectares of land bought from an economic development agency in Shaanxi, 45 hectares of which was zoned for agriculture, will be confiscated.

Construction had started last December and the plants weren’t due to start production until 2011, so the practical effect on BYD will be to constrict future, not present capacity, and the ruling lifts some uncertainty over the company for investors. In one sense BYD has got off lightly. The ministry had previously hit five companies this year for illegal land use, following a tougher inspection regime launched in February that found examples of illegal land use in more than half the 13 cities examined in an initial spot check and officials cooking the books in four. In those cases buildings were ordered to be demolished, land taken back, executives imprisoned and officials reprimanded. BYD’s high-profile and famous foreign investor may have helped it escape the most severe of those punishments, as least as far as we can tell at this point.

The question now is what sort of signal BYD’s punishment will send, and who will see it. One audience is foreign companies. As the China Law Blog pointed out in response to our preview post on the ruling, “if China is going after Chinese companies for putting manufacturing facilities on agricultural land, what in the world makes you as a foreign company think you will be able to get away with doing the same thing?”

The bigger audience is local officials, at least a dozen of whom in this case have been censured for not exercising effective supervision, including one, the director of the planning department in Shaanxi’s local Land and Resources office, who has been removed from office. It is not unknown for local officials to turn a blind eye to such land-use violations in the drive for economic growth. Companies want to bring new production capacity on stream without waiting for all the red tape to be dealt with, while officials themselves are  judged on their promotion of local economic growth and local governments have become hooked on land sales for their revenue.

The ministry has said that 7,800 hectares of land had been used illegally in the first half of this year, a 14% increase over the same period last year. That reversed the trend of the figures of the past three years. They had shown the issue was shrinking, but that may just have reflected lax enforcement and reporting. The country’s farmland has continued to be eaten up by industrialization and urbanization. It has shrunk by 6% over the past decade to 122 million hectares, barely above the minimum arable land the ministry reckons China needs to be self-sufficient in food. The summer’s floods and the drought earlier in the year in some parts of the country have reduced that margin further. Food self-sufficiency is considered a national security issue. Getting permission to change agricultural land to other uses, particularly commercial uses, is now tougher than ever.

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Filed under Environment, Industry, Politics & Society

Cracking Down On Illegal Land Use: The BYD Case

A deadline is drawing near in a case of illegal land use involving BYD, the fast-growing compact automaker in which American investor Warren Buffett has a 10% stake, and which is being widely watched for a potential shift in policy.

In July, the Ministry of Land and Resources said it would rule by Sept. 30 on what to do about the company building seven factories on 49 hectares of land bought from an economic development agency in Shaanxi, 45 hectares of which was zoned for agriculture.

It is not unknown for local officials to turn a blind eye to such zoning violations in the drive for economic growth. Companies want to bring new production capacity on stream without waiting for all the red tape to be dealt with, while officials themselves are  judged on their promotion of local economic growth and local governments have become hooked on land sales for their revenue.

The ministry has said that 7,800 hectares of land had been used illegally in the first half of this year, a 14% increase over the same period last year. That reversed the trend of the figures of the past three years. They had shown the issue was shrinking, but that may just have reflected lax enforcement and reporting. The country’s farmland has continued to be eaten up by industrialization and urbanization. It has shrunk by 6% over the past decade to 122 million hectares, barely above the minimum arable land the ministry reckons China needs to be self-sufficient in food. The summer’s floods and the drought earlier in the year in some parts of the country have reduced that margin further.

The ministry has hit five companies so far this year for illegal land use, following a tougher inspection regime launched in February that found examples of illegal land use in more than half the 13 cities examined in an initial spot check and officials cooking the books in four. In those cases buildings were ordered to be demolished, land taken back, executives imprisoned and officials reprimanded.

None of the companies sanctioned were as high profile as BYD. How tough will the ministry be this time? And what sort of signal will it want its ruling to send?

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Filed under Economy, Environment, Industry, Politics & Society

BYD’s All-Electric Car To Go On Sale Next Month

BYD chairman Wang Chuanfu tells the WSJ that his company will have an all-electric car on sale in China by the end of November. That is the reason that Warren Buffett splashed out $230 million for a 10% stake in BYD last month (see “Buffet Buys Batteries“). BYD’s vehicle will look a lot like General Motors’ forthcoming Chevy Volt, but will hit the market two years earlier, the WSJ says. It will also beat out Toyota’s next-gen hybrid.

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Buffett On PetroChina

Warren Buffett, in the latest of his annual letters to Berkshire Hathaway shareholders, published on Friday, noted the one large sale his company made last year, its stake in PetroChina.

We reproduce his commentary here, without any of our own. Its Buffettry at its best, both Warren the investor and Warren the wry wit, topped off with a deft and subtle parting swipe against the Dafur activists who had pressed him to sell because of China’s oil interests in Sudan.

“In 2002 and 2003 Berkshire bought 1.3% of PetroChina for $488 million, a price that valued the entire business at about $37 billion. Charlie [Munger] and I then felt that the company was worth about $100 billion. By 2007, two factors had materially increased its value: the price of oil had climbed significantly, and PetroChina’s management had done a great job in building oil and gas reserves. In the second half of last year, the market value of the company rose to $275 billion, about what we thought it was worth compared to other giant oil companies. So we sold our holdings for $4 billion.

A footnote: We paid the IRS tax of $1.2 billion on our PetroChina gain. This sum paid all costs of the U.S. government – defense, social security, you name it – for about four hours.”

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The Trillion Dollar Company

PetroChina is the first firm to be worth $1 trillion.

Shares in the publicly quoted arm of China National Petroleum Corp. nearly tripled on their first day of trading in Shanghai. They already traded on the Hong Kong and New York exchanges. PetroChina’s initial public offering in Shanghai raised $8.9 billion dollars — a record for a Chinese domestic float, and the shares popped from the issue price of 16.70 yuan ($2.24) to 43.96 yuan ($5.90). CNPC holds 85% of the shares, so the pool of tradable shares is relatively small.

American investor Warren Buffett had been an investor in PetroChina but sold off his 2.3 billion share stake at a profit of $3.5 billion.

The Shanghai market is so frothy and the dollar so weak that the $1 trillion figure is a bit of an artifact, but it makes PetroChina twice the size of Exxon Mobil in terms of market cap, and bigger than the entire Russian stock market.

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Buffett Bows Out Of PetroChina

Warren Buffett has been selling off his 11.5% stake in PetroChina for some months. Now he is out altogether, according to the FT

Shareholder activists have been pressing Buffett’s Berkshire Hathaway to divest its holding because of the Chinese energy company’s ties to Sudan. But Buffett, who was the largest foreign shareholder in the energy company,  says he sold for the money. “We made about $3.5 billion on about a $500m investment,” Buffett told Rupert Murdoch’s new business news cable channel in the U.S.

The stock price had more than doubled since a shareholder meeting earlier this year voted down a proposal that the company divest the stock. The Save Darfur Coalition has urged investing institutions such as Fidelity, Vanguard and American Funds, three U.S. mutual funds, as well as investors like Berkshire Hathaway, to sell their PetroChina stakes. 

“I still sold too soon as it turned out”,  Buffett says, as the price of the stock has continued to rise.

Poor dear.

Update: BBC is reporting that UBS is being pressed by activists to end its role in listing PetroChina on the Shanghai stock market.

Fat chance.

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