View
4
Download
0
Category
Preview:
Citation preview
Th R t B k t Chi ?The Route Back to China? (China Market and RQFII Update)
Dr. Minggao ShenHead of China Research
Citi852 2501 2485+852-2501-2485
minggao.shen@citi.com
Kevin WongKevin WongHead of Securities & Fund ServicesGlobal Transaction Services, China
+86 (21) 2896-6705 k i @ iti
29 February 2012
kevin.sc.wong@citi.com
Table of Contents
1. China Economic & RMB Outlook 5
2. China QFII Update
Appendices
18
26Appendices 26
Dr Minggao ShenDr. Minggao Shen
Head of China Research
Dr. Shen, Managing Director based in Hong Kong, is an Economist.
Before joining Citigroup in 2005 in Beijing, Dr. Shen was an Associate Professor at the China Center for Economic Research, Peking University. He also served as a research fellow at the Research Center for Rural Development, and the Development Research Center, both under the State Council of China.
Dr. Shen specializes in economic and market analysis in China. During his 25+ years in the industry he has conducted collaborative research with or provided consulting services for the World Bank, Asia Development Bank, National Development and Reform Commission, and People's Bank of China.
Dr. Shen received his PhD in economics from Stanford University in 2001
See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosures.Citi Investment Research & Analysis is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
3
result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Kevin WongKevin Wong
Country Head, Securities & Fund Services, China
Kevin joined Citi in August 2011 as Managing Director and Securities Country Manager for Citi’s Securities & Fund Services group in China and has over 16 years experience in the banking industry having worked in& Fund Services group in China and has over 16 years experience in the banking industry, having worked in Hong Kong, Singapore and Australia prior to his relocation to Shanghai.
Kevin is instrumental in communicating with regulators and infrastructures and is a seasoned professional with extensive experience in driving new business development activities, as well as dealing with institutional clients.
Kevin graduated from the University of Sydney in 1996 with a Bachelor of Commerce degree and started his career in 1996 in Sydney with Bankers Trust, which was acquired by Deutsche bank in late 90's, and moved to Singapore in 1999 Prior to joining Citibank China Kevin was the Managing Director with The Bank ofto Singapore in 1999. Prior to joining Citibank China, Kevin was the Managing Director with The Bank of New York Mellon, heading asset servicing sales team for Asia Pacific region based in Hong Kong.
4
Chi E i d RMB O tl kChina Economic and RMB Outlook:Slower Growth, Looser Policy
Citi’s Key Macro Forecasts
2011F 2012F 2013F 2011F 2012F 2013F 2011F 2012F 2013F 2011F 2012F 2013FGbbal 3.0 2.4 3.0 3.6 3.0 2.9 0.2 0.2 0.4 (4.9) (4.3) (3.3)Based on PPP Weights 3.7 3.0 3.5 4.2 3.5 3.3 0.5 0.3 0.5 (4.3) (3.9) (3.1)Industrial Countries 1 3 0 7 1 1 2 3 1 8 1 4 (0 8) (0 5) (0 4) (6 9) (5 7) (4 4)
GDP Growth (% YoY) CPI Inflation (% YoY) Current Balance (% ofGDP) Fiscal Balance (% ofGDP)
Industrial Countries 1.3 0.7 1.1 2.3 1.8 1.4 (0.8) (0.5) (0.4) (6.9) (5.7) (4.4)US 1.7 2.0 1.8 2.4 2.2 1.8 (3.1) (2.6) (2.5) (9.3) (7.3) (6.2)Japan (0.9) 1.2 1.4 (0.3) (0.4) (0.1) 2.1 1.5 2.0 (10.7) (10.9) (8.5)Euro Area 1.5 (1.3) (0.3) 2.7 2.3 1.4 (0.3) (0.3) (0.3) (4.3) (3.4) (2.2)Canada 2.4 1.9 2.3 2.9 2.0 1.8 (2.8) (2.7) (2.6) (1.8) (1.5) (0.9)Australia 1.9 3.4 3.8 3.4 2.2 3.1 (2.2) (3.0) (5.0) (3.4) (2.5) 0.1New Zealand 1.4 2.6 2.6 4.1 2.1 2.3 (3.9) (5.3) (7.2) (9.2) (5.8) (2.6)Germany 3.1 0.6 1.5 2.3 1.8 2.3 5.4 4.4 3.9 (1.0) (1.6) (1.1)France 1.7 (0.3) 0.5 2.3 2.3 1.6 (2.3) (2.0) (1.1) (5.5) (4.2) (2.8)Italy 0.4 (2.4) (0.5) 2.9 3.4 2.1 (3.2) (2.7) (2.2) (4.4) (3.0) (1.3)Spain 0.7 (2.8) (1.6) 3.1 2.3 1.7 (3.7) (2.9) (2.2) (8.0) (6.0) (3.7)Greece (7.0) (8.0) (2.6) 3.1 1.2 (0.4) (9.6) (8.3) (6.7) (14.1) (11.6) (8.7)Ireland 0.8 (0.7) 0.3 (0.8) 0.2 0.0 0.6 3.2 4.3 (9.9) (9.7) (10.0)Portugal (1.5) (5.5) (3.4) 3.6 3.0 1.9 (8.4) (5.2) (2.4) (5.9) (4.6) (4.1)Netherland 1.3 (1.2) 0.4 2.3 2.3 1.8 8.1 7.3 7.3 (4.1) (3.9) (3.5)Belgium 1.9 (0.5) 0.8 3.5 2.8 1.7 (0.7) (2.0) (1.3) (3.7) (2.5) (1.3)Denmark 1 0 0 9 1 2 2 7 2 0 1 4 6 7 5 7 5 5 (2 5) (5 2) (3 9)Denmark 1.0 0.9 1.2 2.7 2.0 1.4 6.7 5.7 5.5 (2.5) (5.2) (3.9)Norway 2.7 2.5 2.9 1.3 1.9 2.2 14.0 14.3 14.9 12.0 12.5 13.5Sweden 4.5 0.5 1.9 2.9 1.2 1.9 7.4 7.7 8.0 0.1 (0.4) (0.2)Switzerland 1.8 (0.2) (0.1) 0.2 (1.2) (1.3) 14.5 14.1 14.6 0.6 (0.2) (1.0)UK 0.9 0.2 1.0 4.5 2.4 1.9 (2.4) (0.1) 1.3 (8.0) (7.7) (6.8)Emerging Markets 6.1 5.3 5.9 6.1 5.1 5.2 2.1 1.5 1.7 (1.5) (1.8) (1.5)g g ( ) ( ) ( )China 9.2 8.4 8.6 5.4 3.5 3.9 2.8 2.0 1.5 (1.1) (2.0) (1.5)India 6.9 7.0 7.5 9.0 6.7 6.5 (3.5) (3.6) (3.2) (8.3) (8.0) (7.5)Russia 4.3 3.5 4.0 8.4 5.5 6.8 5.5 3.2 0.6 0.8 (0.3) (0.5)Brazil 2.9 3.3 4.5 6.6 5.5 5.1 (2.1) (2.1) (2.4) (2.7) (2.7) (2.9)
Source: Citi Investment Research and Analysis estimates.
6
Slowdown in Both External and Domestic Demands
China’s Export Growth is Sensitive to Growth in the US and Europe
Property Sector: Investment May Plunge
100 45506
60
80
30
35
40
30
40
2
4
20
40
(%Y-
o-Y)
20
25 (%Y-o-Y)
10
20
0 (% Y-oY-
o-Y)
(20)
0
10
15
0
(4)
(2)
o-Y)(% Y
(40)
( )
2006
2007
2008
2009
an-2
010
eb-2
010
ar-2
010
pr-2
010
ay-2
010
un-2
010
Jul-2
010
ug-2
010
ep-2
010
ct-2
010
ov-2
010
ec-2
010
an-2
011
eb-2
011
ar-2
011
pr-2
011
ay-2
011
un-2
011
Jul-2
011
ug-2
011
ep-2
011
ct-2
011
ov-2
011
ec-2
011
0
5
(20)
(10)
(6)
Ja Fe M Ap Ma Ju J Au Se O No
De Ja Fe M Ap Ma Ju J Au Se O No
De
Floor Area Started (LHS)
Real Estate Investment exEconomic Housing (RHS)
Real Estate Investment (RHS)
(30)(8)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
US Real GDP EU27 Real GDP CH Export (RHS)
Source: CEIC, Haver and CIRA.
7
Domestic Demand: Infrastructure Investment by Region
Potential for Infrastructure Investment by Province
40
Gansu
Yunnan
30
35
InnerMongolia
Guangxi
Shaanxi
Sh i
Sichuan Guizhou
QinghaiChongqing
Ningxia
25
vest
men
t% G
DP)_
Heilongjiang
HunanHebei
Jiangx
JilinAnhui
HubeiXinjiang
ShanxiLiaoning
Fujian
Hainan
Tianjin
15
20
(Infra
stru
ctur
eIn
Henan
Shandong
Jiangsu
GuangdongZhejiang10
15
560 80 100 120 140 160 180
(Loan% GDP)
8
Source: CEIC and Citi Investment Research and Analysis.Note: Beijing (258.5% vs. 9.1% loan to GDP ratio), Shanghai (199% vs. 8.2%), and Tibet (59.5% vs. 51.2%) are not plotted here. Those blocked are coastal provinces.
Planned Investment In The 12th Five Year Plan
Projected Investments in 12th Five Year Plan
InvestmentProjected Investment in
12FYP (RMB tn)
Water Management Projects (Irrigation in the Countryside and Water Quality in Urban Areas) 2 0Water Management Projects (Irrigation in the Countryside and Water Quality in Urban Areas) 2.0
Environment Protection 3.1
Power Industry 5.3
Roads, Ports and Inland Rivers 6.2
Railway 2.8
Social Housing 5.0
Seven Strategic New Sectors (New-generation Information Technology, Energy-saving and Environment Protection, New Energy, Biology, High-end Equipment Manufacturing, New Materials and New-energy Cars) 10.0
Source: CIRA.
9
Fixed Asset Investment Growth: Key Sector Forecasts
Fixed-asset Investment by Key Sectors50
35
3231
41
37
3332
33
40
26
21
24
31
23
28
2224
28
2325
272626
25
30
(%Y-
o-Y)
1918
1719
12
17
2020
910
0Total FAI Infrastructure (23%) Property and Construction
(26%)Services (8%) Manufacturing (25%) Resources (13%)
2004–2008 2009 2010 2011 January–November 2012F
Source: CEIC and CIRA.Note: Numbers in parentheses are shares of total FAI in 2011.
10
Estimated Potential GDP Growth
Estimated Potential GDP Growth Rates, 2010–2020
Methodology 2001–2005 2006–2010 2011–2015 2016–2020 YearGDP per Capita
(1990 International dollars)National Data 9.8 11.2 9.7 6.5 2016 11,608
GDP Growth (Annual, %) Turning Point for Structural GDP Growth Slowdown
,
Aggregated Provincial Data 9.8 11.2 8.2 7.3 2014 10,680
Goods Based Electricity 9.8 11.2 9.0 7.2 2013 9,853
Automobile Stock 9.8 11.2 9.4 7.0 2017 12,967
Steel Stock 9.8 11.2 8.2 7.3 2017 12,514
Automobile Production 9.8 11.2 9.4 7.2 2017 12,320
Steel Production 9.8 11.2 9.7 6.7 2013 10,145
Average 9 8 11 2 9 1 7 1 11 441
Source: Development Research Center of the State Council, and Citi Investment Research and Analysis estimates.
Average 9.8 11.2 9.1 7.1 11,441
11
Further Policy Easing Likely
Key Policy Instruments
RRR Cuts: 3–7 times
Credit Easing: Rmb8tn New Loans and Rmb14tn Total
25 6
Financing expected
Proactive Fiscal Policy: Structural Tax Cut
Privatization: Infrastructure, Energy and Services
20
4
5
Key Indicators to Watch Before Further Easing
Rising unemployment after the Chinese New Year: Some 4m people could lose jobs in the export sector l
15
(%)
3
(%)
alone
Falling property sector investment: Growth may slow to below 10% Y-o-Y in 1Q
Collapsing power consumption: As we show below
10
2
Collapsing power consumption: As we show below, some experts only expect 5% in 1Q and 8.5% for the year
Deteriorating external demand: Export growth could h l i l di it
51
reach low single digits
Sluggish fiscal revenue: Possibly single-digit growth in 1Q
02004 2005 2006 2007 2008 2009 2010 2011 2012
0
RRR One-Year Deposit Rate
12
Capital Flight vs. Liquidity Condition
PBOC’s Purchase of Foreign Exchanges Liquidity has Reached its Turning Point
40
45 25
600
700
30
35
40
15
20
400
500
600
20
25
30
(%Y-
o-Y)
10
15
(%)
200
300
400
MB
bn)
10
15
20(
5
0
100
(RM
0
5
10
(5)
0
(200)
(100)
CIC Formed
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
(5)
M1 M2-GDP-CPI (RHS)
(300)2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: CEIC and CIRA.
13
Major RMB/CNH Policy Changes in 2010–12Feb-10 HKMA expanded scope of RMB banking business & approved mainland’s non-financial firms to issue RMB bonds in HK
Jun Expanded RMB trade settlement to 20 mainland provinces with all foreign trade partnersJul HK banks can offer RMB a/c, loan & investment products to corporates. Eliminated limit on RMB conversion & corporate a/c
transfers Allowed authorized foreign central banks, HK & Macau RMB clearing centers, and other foreign banks participating in the
RMB trade settlement scheme to invest their RMB in onshore interbank bond marketOct HKMA taps PBOC's RMB swap lines to provide RMB conversion facilities to HK banks that have RMB trade settlement
needs, as the clearing bank BOC(HK) used up its RMB8bn conversion quotaNov SAFE tightens capital account rules causing significant disruption to on/off shore forward markets requiring banks toNov SAFE tightens capital account rules, causing significant disruption to on/off shore forward markets, requiring banks to
maintain long USD positions at the end of each day, among other measuresDec Expanded the list of eligible enterprises and participating locations in the RMB trade settlement scheme
HKMA requires HK banks to first square their own positions for RMB trade proceeds before purchasing RMB through the Clearing Bank, RMB purchases for trade transactions can only be for within three monthsg p y
HKMA requires banks to limit their RMB net (long/short) open positions to 10% of their RMB assets or liabilitiesJan11 PBOC allowed non-financial Mainland enterprises to settle overseas direct investment (ODI) in RMBApr PBOC cut the offshore Yuan deposit rate it offers to HK’s clearing bank (BOCHK) to 0.72% from 0.99%
Banks can deposit their excess RMB funds in a Fiduciary Account with the PBoC via the Clearing Bankp y gJun PBOC directive No.4 of document No.145 – requires Mainland importers to do FX conversion onshore for their trades with
offshore exportersOct PBOC and MOC jointly issued application guidelines for RMB settlement for FDI
Dec CSRC issued RQFII guidelines (initial scale: RMB20bn) & issued first batch of licenses; SFC subsequently approved 18Dec CSRC issued RQFII guidelines (initial scale: RMB20bn) & issued first batch of licenses; SFC subsequently approved 18 RQFII funds in Jan-12
NDRC approved 1st cross-border RMB mid-long term commercial loan (Guangdong Nuclear Power-BoCHK RMB3bn loan in HK)
Jan12 HKMA released more RMB working capital for banks (by allowing RMB sovereign bond holdings to be included as part of th i i 25% ithh ldi RMB t d it ) d i d RMB N t O P iti li it t 20% (f 10%the minimum 25% withholding RMB customer deposits) and raised RMB Net Open Position limit to 20% (from 10% previously)
14
RMB Deposits in HK
600
700 25
500
20
300
400
RM
B in
Billi
on
10
15
%
200
5
10
0
100
0
5
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
RMB Deposits in HK Share of Total Deposits (RHS) Share of Total Total Foreign Deposits (RHD)
15
Source: CEIC and CIRA.
RMB Appreciation May Continue But With a Slower Pace
10 (10)
Appreciation Against the Dollar, SelectedEmerging Market Currencies
RMB Appreciation vs. CPI Inflation
8 (8)
HUF
INR
ZAR
TRY
4
6 (6)
(4)RUB
BRL
MXN
HUF
2 (2)KRW
TWD
MYR
THB
`
0 0
HKD
PHP
IDR
SGD
Appreciation Depreciation
(2)02 03 04 05 06 07 08 09 10 11 12
2
CPI (% YoY) RMB / USD (% YoY, Reversed, RHS)
(10) 0 10 20 30 40
CNY
HKD
Since July 2011 2011
Source: Bloomberg and CIRA.
16
Source: CEIC and CIRA.
RMB Internationalization
RMB internationalization will likely be a gradual process
Key challenges: RMB asset markets, inflation-targeted monetary policy, and RMB revaluation
Interest rate liberalization: Wealth management products and informal lending Interest rate liberalization: Wealth management products and informal lending
Capital account liberalization (Sheng Songcheng, 2011)– In the near term (1–3 years), deregulating direct investment
In the medium term (3 5 years) deregulating commercial credit supported by trade– In the medium term (3–5 years), deregulating commercial credit supported by trade– In the longer term (5–10 years), deregulating capital inflows and outflows, and investment in real
estate, equity and bonds
17
China QFII Update
Qualification Requirements to become a QFII
Investor Years of Business Experience
Paid-in Capital
Assets under Management
Other Requirements
Fund Management Company
5 N/A No less than USD 5 billion N/A
Insurance Companies 5 N/A No less than USD 5 billion N/A
S iti Fi 30 No less than No less than N/ASecurities Firms 30 No less than USD 1 billion
No less than USD 10 billion N/A
Commercial Banks N/A N/A No less than USD 10 billion
Top 100 globally in terms of total assets
Other Institutional Investors* 5 N/A No less than
USD 5 billion N/A
MOU Between CSRC and Applicant’s financial regulator
* Including pension funds, charity funds, donation funds, trust companies & government investment management companies, etcg p , y , , p g g p ,
19
QFII Application - A Transparent Process2 Apply 3 CSRC1. Designate
Custodian
2. Apply through
Custodian
3. CSRC and SAFE Approval
4. Account Opening
5. Capital Injection
6. Start Trading
Approx. 6 - 9 months 3–5 weeks 2 weeks 6 months
Award mandate Prepare application CSRC reviews QFII Approval from PBOC Final quota Start trading Award mandateto custodian bank
Prepare application docs
Investment plan is the key document
Wording and format are important
CSRC reviews QFII application
CSRC approves Investment License
SAFE approves Investment Quota
Approval from PBOC for RMB Special A/C
Open securities a/c with CSDCC SH/SZ
Designate local broker (SH/SZ)
Final quota subject to actual amount paid-in
Start trading
Help to build Prepare a/c opening Handles FX Custodian
Apply to open special RMB and FX accts
Agreement among custodian /QFII/Broker
Open safekeeping A/C with Custodian
Guide on first Guide on QFII differentiated application strategy and working plan
Recommendation by Custodian to regulators
application to SAFE/PBOC
Prepare regulatory compliance reports
Provide tailored account structure for
conversion Tailored solution
to meet client’s cash mgmt preferences
Remind relevant
Guide on first trade execution and settlement
application process, market updates, and arrange meeting with regulators if necessary
Documents review and submit
Help clients to answer queries from CSRC/SAFE
client Coordinate
legal agreements with brokers
regulatory reporting
Monitor cash injection flow and transfer status
Provide QFII related market information
Assist in draft investment plan
Assist in i ti ith
Agreement among custodian /QFII/Broker
Confirm on trading & ops flow and system
System connection and trading test
Broker Provide trading & execution service
Provide research support and corp accessA i t i
20
communication with regulators
Consultancy
flow and system connectivity
Open QFII trading account
Assist in settlement
What’s New in China QFIIQFII License/Quota Approval Updates• In Q4 2011 & Jan 2012, CSRC approved 19 & 7 new QFIIs respectively,
Q4 2011– Monetary Authority of Singapore
• SAFE approved total 6 new quotas (each approval is USD$100 million ) and 2 incremental quotas:
– New quotas: Lyxor Asset Management US$100mn Polaris Inter. Securities Investment Co. Ltd. US$100mn
$y y g p
– China Life Insurance Co., Ltd. (Taiwan) – Shin Kong Life Insurance Co., Ltd. – The Trustees of Princeton University – Shinko Asset Management Co., Ltd.– Canada Pension Plan Investment Board
Assicurazioni Generali S.p.A. US$100mn Banco Bilbao Vizcaya Argentaria, S.A. US$100mn Cathay Securities Investment Trust Co. Ltd. US$100mn Fuh Hwa Securities Investment Trust Co. Ltd. US$100mn
– Incremental quotas: UBS Global Asset Management (Singapore) Ltd US$50mn
License ApprovalQFII Approval Process Expedited
– Van Eck Associates Corporation– Hansberger Global Investors, Inc.– EARNEST Partners LLC– Bank of Thailand– Kuwait Investment Authority– Northern Trust Global Investments Limited
UBS Global Asset Management (Singapore) Ltd. US$50mn Invesco Asset Management Limited US$100mn
• CSRC organized an urgent meeting on 14 Dec 2011 with all the QFII custodian banks and announced verbally they will expedite the QFII license review process.
• CSRC will shorten its approval process to 6 months.
• No additional PowerPoint material will be required
Northern Trust Global Investments Limited– Taiwan Life Insurance Co. Ltd– The Bank of Korea– Ontario Teachers’ Pension Plan Board– Korea Investment Corporation– Russell Investments Ireland Limited No additional PowerPoint material will be required.
• CSRC will no longer provide a quarterly shortlist of QFII applicants, therefore all applicants are encouraged to submit updated material as early as possible.
Quota Approval
– Metzler Asset Management GmbH– HI Asset Management Co. Limited
Jan 2012– Shinhan BNP Paribas Asset Management Co., Ltd.
Stichting Pensioenfonds voor Huisartsen (Netherlands)• During the first three quarters of 2011, only 4 panel meetings had been
arranged by SAFE, resulting in only 15 QFII quotas approved.
• In Nov 2011, with the easing of pressure on inflation and “hot money” inflow, SAFE reinstated its monthly panel meeting for QFII quota consideration. It is anticipated SAFE will approve 4-5 QFII quotas on
– Stichting Pensioenfonds voor Huisartsen (Netherlands) – National Pension Service (South Korea)– Mercuries Life Insurance Co, Ltd – Prudential Financial Securities Investment Trust Enterprise– Principal Global Investors LLC– Hospital Authority Provident Fund Scheme (HK) consideration. It is anticipated SAFE will approve 4 5 QFII quotas on
monthly basis. The Panel meeting held respectively in Nov and Dec 2011 had approved 8 quotas in total.
21
What’s New in China QFII
Multiple License Application
Until further notice, CSRC will no longer accept multiple applications from the same
QFII Off-shore ETF Fund On China A-share Index It is observed that recently more and more QFIIs are issuing ETF funds overseas on
China local A-share index. The most popular funds are SSE 50 Index fund and SSE 180 Index fund.A j i b h Sh h i S k E h d h Sh h S kapplications from the same
group company. As a joint venture between the Shanghai Stock Exchange and the Shenzhen Stock
Exchange, CSI is a professional business entity specializing in the creation and management of indices and index-related services. QFIIs can contact CSI Zhou Bing directly for index licensing. The information is as shown below:
Zh BiZhou BingAssistant Manager of Market Service Department China Securities Index Company Limited 13F South Securities Tower No. 528 South Pudong Road Shanghai 200120 P R China
Delayed Application
Until further notice, CSRC will no longer entertain extension of
Shanghai, 200120 P.R. ChinaTel 8621-6880 3988-122 Fax 8621-6882 9830Mobile 86138 0183 7080Email bingzhou@sse.com.cn
application beyond one-year period. The key guidance of CSI applying process for off-shore ETF index fund is as follows:
– Before obtaining the license and quota from CSRC and SAFE, QFII should contact China Securities Index Co., Ltd. (CSI) for the index licensing contract negotiation. CSI indicates the process will take 2-4 weeks to complete.Aft th t i d b SAFE CSI ill b it th i d li i– After the quota is approved by SAFE, CSI will submit the index licensing application to CSRC. The approval by CSRC will take one month according to the information provided by CSI.
– After the sign-off of the contract approved by CSRC, QFII can issue the ETF funds overseas.
22
New Market Development
CSRC released the pilot administration rules for securities finance business in Oct 2011.
SFC was formed in October 2011 Mr Xue Wenshi (previously Director of Shaanxi Province Securities Regulatory Bureau)
The Establishment of Securities Finance Company (SFC)
SFC was formed in October 2011. Mr. Xue Wenshi (previously Director of Shaanxi Province Securities Regulatory Bureau) was appointed as Chairman of SFC and Mr. Nie Qingping (previously Director of the Working Group for Margin Trading & Securities Lending in CSRC) was appointed as General Manager of SFC.
CSRC has assigned several senior officers to SFC with specific posting to be announced. In addition, SFC has began to recruit externally.recruit externally.
Some guiding principles that SFC will take in the future are as follows:
– SFC is the central counterparty in all securities financing transactions.
– SFC will only “deal” with securities companies as participants– SFC will only deal with securities companies as participants.
– Securities companies will firstly lend securities and cash to their clients. When these are insufficient, the securities companies can approach SFC to borrow.
– Upon receipt of the borrowing request, the SFC will issue feeds to other local securities firms to solicit interest to lend. Interested companies may reach out to their local client base (banks, pensions, insurance companies, trust companies and asset management companies) to solicit interest to lend. Whether QFII can participate in this market has not yet been finalized by CSRC.
– SFC will allocate the loan on a proportional basis. Rates paid to lenders and charged to borrowers will be fixed, and the level will vary depending on the term of the loan. The spread between rates paid to lenders and charged to borrowers will be the revenue of SFC.
SFC has not yet finalized the systems, working flows and working guidelines.
23
New Market Development
RQFII Scheme Announced CSRC, SAFE and PBOC jointly released the “RMB Qualified Foreign Institutional Investors (RQFII) Securities Investment Pilot
Regulation For Mutual Fund Companies and Securities Companies” (Circular No. 76) on 16 Dec 2011.
Following the circular No 76 CSRC SAFE and PBOC immediately issued the implementation rules respectively for “RMB Qualified Following the circular No. 76, CSRC, SAFE and PBOC immediately issued the implementation rules respectively for RMB Qualified Foreign Institutional Investors (RQFII) Securities Investment Pilot Regulation for Mutual Fund Companies and Securities Companies”.
CSRC and SAFE are proceeding the review process at amazing speed, such as CSRC and SAFE had approved the first batch of RQFII licenses and quotas for securities companies and asset management companies respectively on 26 and 30 Dec 2011, which is far beyond the market expectation.
The Approved 12 Securities Companies The Approved 9 Mutual Fund Companies
y p
For more information of our observation on regulation, kindly refer to the Appendix D, E and F.
pp p pp p China International Capital Co., Ltd. RMB 0.9 billion (1)
China Merchants Securities Co., Ltd. RMB 0.9 billion (1)
CITIC Securities Co., Ltd. RMB 0.9 billion (1)
Essence Inter. Financial Holdings Ltd RMB 0.9 billion
CSOP Asset Management Limited RMB 1.1 billion
China Asset Management Co., Ltd RMB 1.2 billion
China Universal Asset Management (Hong Kong) Co., Ltd RMB 1.1 billion
Bosera Asset Management (International) Co ., Ltd RMB 1.1 billion g
Ever Bright Securities Co., Ltd. RMB 0.9 billion (1)
GF Securities Co., Ltd. RMB 0.9 billion (1)
Guosen Securities Co., Ltd. RMB 0.9 billion (1)
Guotai Junan Securities Co., Ltd. RMB 0.9 billion (1)
g ( )
Da Cheng International Asset Management Co., Ltd RMB 1.1 billion
E Fund Management Co., Ltd RMB 1.1 billion (1)
Harvest Global Investments Limited RMB 1.1 billion
HFT Investment Management (HK) Co., Ltd RMB 1.1 billion
Guoyuan Securities Co., Ltd RMB 0.5 billion (1)
Haitong Securities Co., Ltd. RMB 0.9 billion (1)
Huatai Securities Co., Ltd RMB 0.5 billion (1)
Shenyin Wanguo (H.K.) Limited RMB 0.9 billion
Hua An Asset Management (Hong Kong) Limited RMB 1.1 billion
Note: (1) Source from regulatory website and industry participants.
24
Comparative Analysis of Capital Market Access
QFII RQFII Foreign Investor of Interbank Market
Regulator CSRC, SAFE CSRC, PBOC, SAFE, Hong Kong SFC PBOC
Criteria of applicant
Commercial bank:– Bank total assets: Top 100 globally;
Hong Kong subsidiaries of China securities companies
RMB clearing banks in Hong Kong and Macau
– Securities AUM : not less than US$10 billion
Securities Company:– Capital: not less than US$1 billion;– Operating more than 30 years;
S
Hong Kong subsidiaries of China mutual fund companies
RMB clearing participating banks (also referred to as business participating banks)
Offshore central banks and monetary authorities
– Securities AUM: not less than US$10 billion
AMC, Insurance and other institutions:– Business Experience of 5 Years, – Securities AUM: not less than
US$5 billionUS$5 billion
Regulations Administration measures of QFII’s domestic investment issued by PBOC, CSRC and SAFE in Aug 2006 and its related notice issued by CSRC; Administration rules on the FX control of
Administration measures of RMB QFII’s domestic investment issued by PBOC, CSRC and SAFE in Dec 2011 and its related implementation rules by CSRC and SAFE
PBOC’s notice on the Pilot Scheme for three types of offshore RMB clearing banks to participate in China interbank bond market issued on 18 August 2010
Administration rules on the FX control of QFII investment issued by SAFE in Sep 2009.
SAFE.
Investment instruments
Stock , bond, fund, warrant, IPO, bond issuance and financial futures
Stock, fund, warrant, IPO, convertible bonds, bonds in the exchange and interbank market, additional stock issuance and other
Bonds in Interbank Market
additional stock issuance and other instrument allowed
FX Required Not required Not required
Markets accessible
Stock Exchange Stock Exchange;Interbank Market
Interbank Market
25
Appendices
A. List of QFII with Approved Investment Quota
$
List of QFII with Approved Investment Quota
No. QFII NameQFII License
Approval DateQFII Quota
(US$100mn)
1 UBS AG 05/23/2003 7.90
142 QFIIs had been approved with a total investment quota of US$22.24 billion (as of Jan 2012)
No. QFII NameQFII License
Approval DateQFII Quota
(US$100mn)
22 Commerzbank (Dresdner Bank AG) 9/27/2004 0.75
2 Nomura Securities Co.,Ltd 05/23/2003 3.50
3 Morgan Stanley & Co. International Limited 06/05/2003 4.00
4 Citigroup Global Markets Limited 06/05/2003 5.50
5 Goldman, Sachs & Co. 07/04/2003 3.00
23 Fortis Bank SA/NV 9/29/2004 5.00
24 BNP Paribas 9/29/2004 2.00
25 Power Corporation of Canada 10/15/2004 0.50
26 Credit Agricole Corporate and Investment Bank 10/15/2004 0.75
Goldman Sachs Asset Management6 Deutsche Bank Aktiengesellschaft 07/30/2003 4.00
7 The Hongkong and Shanghai Banking Corporation Limited 08/04/2003 4.00
8 ING Bank N.V. 09/10/2003 4.00
9 JPMorgan Chase Bank, National Association 09/30/2003 1.50
27 Goldman Sachs Asset Management International 05/09/2005 5.00
28 Martin Currie Investment Management Ltd 10/25/2005 1.20
29 Government of Singapore Investment Corporation Pte Ltd 10/25/2005 3.00
30 Pi B id I t t LLC 11/14/2005 1 50g ,
10 Credit Suisse (HongKong) Limited 10/24/2003 5.00
11 Standard Chartered Bank (HongKong) Limited 12/11/2003 0.75
12 Nikko Asset Management Co.,Ltd 12/11/2003 4.50
13 Merrill Lynch International 04/30/2004 3.00
30 PineBridge Investment LLC 11/14/2005 1.50
31 Temasek Fullerton Alpha Investments Pte Ltd 11/15/2005 3.00
32 JF Asset Management Limited 12/28/2005 3.75
33 The Dai-ichi Mutual Life Insurance Company 12/28/2005 2.00
34 DBS Bank Ltd. 02/13/2006 1.003 e y c e a o a 3 00
14 Hang Seng Bank Limited 05/10/2004 1.00
15 Daiwa Securities SMBC Co.,Ltd. 05/10/2004 0.50
16 Lehman Brothers International (Europe) 07/06/2004 2.00
17 Bill & Melinda Gates Foundation 07/19/2004 3.00
34 DBS Bank Ltd. 0 / 3/ 006 1.00
35 AMP Capital Investors Ltd. 04/10/2006 3.00
36 The Bank of Nova Scotia 04/10/2006 1.50
37 KBC Financial Products UK Limited 04/10/2006 0.20
38 La Compagnie Financierr Edmond de R th hild B 04/10/2006 1.00
18 INVESCO Asset Management Limited 08/04/2004 3.50
19 ABN AMRO Bank N.V. 09/02/2004 1.75
20 Société Générale 09/02/2004 0.50
21 Barclays Bank PLC 09/15/2004 4.00
Rothschild Banque
39 Yale University 04/14/2006 1.50
40 Morgan Stanley Investment Management Inc. 07/07/2006 4.50
41 Prudential Asset Management (Hong Kong) Ltd 07/07/2006 3.00
y
Source: CSRC & SAFE.
42 Stanford University 08/05/2006 1.00
28
$
List of QFII with Approved Investment Quota (Cont’d)
No. QFII NameQFII License
Approval DateQFII Quota
(US$100mn)
43 GE Asset Management Incorporated 08/05/2006 3.50
142 QFIIs had been approved with a total investment quota of US$22.24 billion (as of Jan 2012)
No. QFII NameQFII License
Approval DateQFII Quota
(US$100mn)
64 Oversea-Chinese Banking Corporation Limited 08/28/2008 1.50
44 United Overseas Bank Limited 08/05/2006 0.50
45 Schroder Investment Management Limited 08/29/2006 3.00
46 HSBC Global Asset Management (Hong Kong) Limited 09/05/2006 3.50
47 Mizuho Securities Co.,Ltd 09/05/2006 0.50
65 First State Investment Management (UK) Limited 09/11/2008 1.20
66 DAIWA Asset Management Co. 09/11/2008 2.00
67 Shell Asset Management Company B.V. 09/12/2008 0.00
68 T. Rowe Price International, Inc. 09/12/2008 1.10
48 UBS Global Asset Management (Singapore) Ltd 09/25/2006 2.50
49 Sumitomo Mitsui Asset Management Company, Limited 09/25/2006 3.50
50 Norges Bank 10/24/2006 7.00
51 Pictet Asset Management Limited 10/25/2006 1 00
69 Credit Suisse AG 10/14/2008 2.00
70 UOB Asset Management Ltd 11/28/2008 0.50
71 ABU Dhabi Investment Authority 12/03/2008 2.00
72 Allianz Global Investors Luxembourg S.A. 12/16/2008 1.0051 Pictet Asset Management Limited 10/25/2006 1.00
52 The Trustees of Columbia University in the City of New York 03/12/2008 1.00
53 Prudential Asset Management Co.,Ltd. 04/07/2008 0.75
54 Robeco Institutional Asset management B.V. 05/05/2008 1.50
55 St t St t Gl b l Ad i A i Li it d 05/16/2008 0 50
73 Capital International, Inc. 12/18/2008 1.00
74 Mitsubishi UFJ Securities Co., Ltd. 12/29/2008 1.00
75 Hanwha Investment Trust Management Co. Ltd 02/05/2009 0.70
76 Emerging Markets Management, L.L.C. 02/10/2009 0.5055 State Street Global Advisors Asia Limited 05/16/2008 0.50
56 Platinum Investment Company Limited 06/02/2008 1.50
57 KBC Asset Management N.V. 06/02/2008 2.10
58 Mirae Asset Global Investments Co., Ltd. 07/25/2008 2.50
59 ACE INA International Holdings, Ltd. 08/05/2008 1.50
g g g
77 DWS Investment S.A. 02/24/2009 2.00
78 The Korea Development Bank 04/23/2009 1.00
79 Woori Bank Co., Ltd 05/04/2009 0.50
80 Bank Negara Malaysia 05/19/2009 2.00
60 Quebec Deposit and Investment Fund 08/22/2008 2.00
61 President and Fellows of Harvard College 08/22/2008 2.00
62 Samsung Investment Trust Management Co., Ltd. 08/25/2008 3.00
63 Alliance Bernstein Limited 8/28/2008 1.50
81 Lloyd George Management (Hong Kong) Limited 05/27/2009 0.50
82 Templeton Investment Counsel, LLC 06/05/2009 2.00
83 BEA Union Investment Management Limited 06/18/2009 1.00
84 The Sumitomo Trust & Banking Co., Ltd. 06/26/2009 0.50
Source: CSRC & SAFE.
84 The Sumitomo Trust & Banking Co., Ltd. 06/26/2009 0.50
29
$
List of QFII with Approved Investment Quota (Cont’d)
No. QFII NameQFII License
Approval DateQFII Quota
(US$100mn)
85 Korea Investment Trust Management Co., Ltd 07/21/2009 1.00
142 QFIIs had been approved with a total investment quota of US$22.24 billion (as of Jan 2012)
No. QFII NameQFII License
Approval DateQFII Quota
(US$100mn)
104 BMO Investments Inc. 12/06/2010 1.00(unconfirmed)
86 Baring Asset Management Limited 08/06/2009 2.00
87 Ashmore Investment Management Limited 09/14/2009 2.00
88 BNY Mellon Asset Management International Limited 11/06/2009 1.50
89 Manulife Asset Management (Hong Kong) 11/20/2009 2 00
(unconfirmed)
105 Bank Julius Bear & Co.,Ltd 12/14/2010 1.00
106 KTB Asset Management Co.,Ltd 12/28/2010 1.00
107 Lyxor Asset Management 02/16/2011 1.00
108 Polaris International Securities Investment 03/04/2011 1 0089 g ( g g)Limited 11/20/2009 2.00
90 Nomura Asset Management CO., LTD 11/23/2009 2.00
91 Tongyang Asset Management Corp. 12/11/2009 1.00
108 Polaris International Securities Investment Co. Ltd. 03/04/2011 1.00
109 Assicurazioni Generali S.p.A. 03/18/2011 1.00
110 Banco Bilbao Vizcaya Argentaria, S.A. 05/06/2011 1.00
111 Cathay Securities Investment Trust Co., Ltd. 06/09/2011 1.00
92 Royal Bank of Canada 12/23/2009 1.00
93 Aviva Investors Global Services Limited 12/28/2009 1.00
94 Ivy Investment management Company 02/08/2010 1.00
95 DIAM Co., Ltd. 04/20/2010 1.00
112 Fuh Hwa Securities Investment Trust Co. Ltd. 06/09/2011 1.00
113 Comgest S.A. 06/24/2011 Pending
114 Amundi Hong Kong Limited 07/14/2011 Pending
115 Blackrock Global Investors 07/14/2011 Pending
96 OFI Asset Management 05/21/2010 1.50
97 Aberdeen Asset Management Asia Limited 07/06/2010 2.00
98 KB Asset Management Co., Ltd. 08/09/2010 1.00
99 Fidelity Investments Management (Hong Kong) Limited 09/01/2010 1.50
116 Grantham, Mayo, Van Otterloo & Co.LLC 08/09/2011 Pending
117 Monetary Authority of Singapore 10/08/2011 Pending
118 China Life Insurance Co., Ltd.(Taiwan) 10/26/2011 Pending
119 Shin Kong Life Insurance Co., Ltd. 10/26/2011 PendingLimited
100 Legg Mason Investments (Europe) Limited 10/08/2010 1.00
101 Hong Kong Monetary Authority 10/27/2010 3.00
102 Fubon Securities Investment Trust Co. Ltd. 10/29/2010 1.00
103 Capital Securities Investment Trust Co. Ltd. 10/29/2010 1.00
120 The Trustees of Princeton University 25/11/2011 Pending
121 Shinko Asset Management Co., Ltd 25/11/2011 Pending
122 Canada Pension Plan Investment Board 09/12/2011 Pending
123 Van Eck Associates Corporation 09/12/2011 Pending
Source: CSRC & SAFE.
30
$
List of QFII with Approved Investment Quota (Cont’d)
No. QFII NameQFII License
Approval DateQFII Quota
(US$100mn)
124 Hansberger Global Investors, Inc. 13/12/2011 Pending
142 QFIIs had been approved with a total investment quota of US$22.24 billion (as of Jan 2012)
No. QFII NameQFII License
Approval DateQFII Quota
(US$100mn)
141 Principal Global Investors LLC 31/01/2012 Pending
125 EARNEST Partners LLC 13/12/2011 Pending
126 Bank of Thailand 16/12/2011 Pending
127 Kuwait Investment Authority 21/12/2011 Pending
142 Hospital Authority Provident Fund Scheme 31/01/2012 Pending
128 Northern Trust Global Investments Limited 21/12/2011 Pending
129 Taiwan Life Insurance Co., Ltd 21/12/2011 Pending
130 The Bank of Korea 21/12/2011 Pending
131 Ontario Teachers’ Pension Plan Board 22/12/2011 Pendingg
132 Korea Investment Corporation 28/12/2011 Pending
133 Russell Investments Ireland Limited 28/12/2011 Pending
134 Metzler Asset Management GmbH 31/12/2011 Pending
135 HI Asset Management Co., Limited. 31/12/2011 Pending
136 Shinhan BNP Paribas Asset Management Co., Ltd 05/01/2012 Pending
137 Stichting Pensioenfonds voor Huisartsen 05/01/2012 Pending
138 N ti l P i S i 05/01/2012 P di138 National Pension Service 05/01/2012 Pending
139 Mercuries Life Insurance Co, Ltd 30/01/2012 Pending
140 Prudential Financial Securities Investment Trust Enterprise 31/01/2012 Pending
Source: CSRC & SAFE.Note: Société Générale Asset Management SA returned its QFII License to CSRC in Jan 2010 due to M&A and re-organization and returned the US$100mn QFII quota in June 2010.
31
Appendix A-1
Analyst CertificationTh h l t( ) i il ibl f th ti d t t f thi h t d i b ld t t i th th bl k t th f t f th d t t f The research analyst(s) primarily responsible for the preparation and content of this research report are named in bold text in the author block at the front of the product except for those sections where an analyst's name appears in bold alongside content which is attributable to that analyst. Each of these analyst(s) certify, with respect to the section(s) of the report for which they are responsible, that the views expressed therein accurately reflect their personal views about each issuer and security referenced and were prepared in an independent manner, including with respect to Citigroup Global Markets Inc and its affiliates. No part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this report.
IMPORTANT DISCLOSURESAn employee of Citigroup Global Markets or its affiliates is an Independent Non-Executive Director, Chairman for the Audit Committee and a member of the Remuneration Committee of Fosun International.Paul Gong, Analyst, holds a long position in the securities of PetroChina.Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of Poly (Hong Kong) Investments, CITIC Pacific, Maanshan Iron and Steel, Angang Steel, Jiangxi Copper, Sinopec, China Railway Group, China High Speed Transmission Equipment Group, China Overseas Land & Investment, ZTE Corp., Shimao Property Holdings, Anhui Conch Cement Datang International Power Generation Anhui Expressway China CITIC Bank China Yurun Food Dongfang Electric Corporation Zoomlion Heavy Industry China Railway Anhui Conch Cement, Datang International Power Generation, Anhui Expressway, China CITIC Bank, China Yurun Food, Dongfang Electric Corporation, Zoomlion Heavy Industry, China Railway Construction, Minmetals Resources Limited, KWG Prop, China Minsheng Banking, Xinjiang Goldwind Science & Technology, Ping An Insurance, Weichai Power, China Power International, China Life Insurance, Guangzhou R&F Properties, China National Building Material, Bank of Communications, Lonking Holdings, GCL-Poly Energy Holdings, China Merchants Bank, Suntech Power. This position reflects information available as of the prior business day.Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of an offering of securities of Kunlun Energy, Jiangsu Expressway, Sinofert, Maanshan Iron and Steel, Sinopec Shanghai Petrochemical, China Railway Group, Guangshen Railway, China Agri-Industries Holdings, Beijing Capital International Airport, Tencent Holdings, Franshion Properties China Resources Power PetroChina China Longyuan Power Group China Construction Bank Longfor Properties Lenovo Group Dongfang Electric Corporation Franshion Properties, China Resources Power, PetroChina, China Longyuan Power Group, China Construction Bank, Longfor Properties, Lenovo Group, Dongfang Electric Corporation, Sinopharm, China Resources Land, Brilliance China, Qingling Motors, China Resources Gas, Minmetals Resources Limited, China Resources Cement Holdings, China Kingstone Mining, KWG Prop, Intime Department Store, PICC, China Power International, Guangzhou R&F Properties, China Oilfield Services, Sun Art Retail Group Limited, Qihoo 360 Technology.Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from Poly (Hong Kong) Investments, Kunlun Energy, China Merchants Holdings Int'l, Kingboard Chemical, Uni-President China, CITIC Pacific, Sinofert, Sinopec Shanghai Petrochemical, Angang Steel, Sinopec, China Railway Group, China Communications Services, China Agri-Industries Holdings, Sany Heavy Equipment International, China Eastern Airlines, China Overseas Land & Investment, Beijing Capital International Airport, China Telecom, Asia Cement China, Air China, China Unicom, Franshion Properties, China Resources Power, Leoch Int'l, PetroChina, CNOOC, Trinity, China Vanadium Titano-Magnetite Mining, China Telecom, Asia Cement China, Air China, China Unicom, Franshion Properties, China Resources Power, Leoch Int l, PetroChina, CNOOC, Trinity, China Vanadium TitanoMagnetite Mining, Huaneng Power International, China Longyuan Power Group, China Construction Bank, China Mobile, Longfor Properties, China Taiping Insurance, Datang International Power Generation, Lenovo Group, China CITIC Bank, China Southern Airlines, Huadian Power International, China Shenhua Energy, ChinaResources Land, China Railway Construction, China Resources Gas, COSCO Pacific, CITIC Resources Holdings, Minmetals Resources Limited, Agricultural Bank of China, SITC International, China Resources Cement Holdings, China Kingstone Mining, Hidili Industry, Industrial & Commercial Bank of China, China Communications Construction, KWG Prop, Intime Department Store, Kingboard Laminates Holdings, China Minsheng Banking, BBMG, China Gold International Resources, Xinjiang Goldwind Science & Technology, Ping An Insurance, PICC, Weichai Power, Aluminum Corporation of China, China Pacific Insurance, China Life
Insurance, Guangzhou R&F Properties, China Oilfield Services, China State Construction, Bank of Communications, Sinotruk (Hong Kong), China Merchants Bank, China BlueChemical, Bank of g p ( g g)China, Sun Art Retail Group Limited, HiSoft Technology International, Sky-mobi, Qihoo 360 Technology, Shangpharma, VanceInfo Technologies. Citigroup Global Markets Inc. or its affiliates expects to receive or intends to seek, within the next three months, compensation for investment banking services from Poly (Hong Kong) Investments, Kunlun Energy, China Merchants Holdings Int'l, CITIC Pacific, Sinofert, Sinopec Shanghai Petrochemical, Angang Steel, Sinopec, China Railway Group, China Communications Services, China Agri-Industries Holdings, Sany Heavy Equipment International, China Eastern Airlines, China Overseas Land & Investment, Beijing Capital International Airport, China Telecom, Air China, China Unicom, Franshion Properties, China Resources Power, PetroChina, CNOOC, Trinity, Huaneng Power International, China Longyuan Power Group, China Construction Bank, China Mobile, China Taiping Insurance, Datang International Power Generation, Lenovo Group, China CITIC Bank, China Southern Airlines, Huadian Power International, Dongfang Electric Corporation, China Shenhua Energy, China Resources Land, China Railway Construction, China Resources Gas, COSCO Pacific, CITIC Resources Holdings, Minmetals Resources Limited, Agricultural Bank of China, China Resources Cement Holdings, Industrial & Commercial Bank of China, China Communications Construction, Intime Department Store, BBMG, PICC, Weichai Power, Aluminum Corporation of China, China Life Insurance, China Oilfield Services, China State Construction, Sinotruk (Hong Kong), China Merchants Bank, China BlueChemical, Bank of China. Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from Poly (Hong Kong) Investments, Kunlun Energy, China Merchants Holdings Int'l, Kingboard Chemical, Want Want China, Uni-President China, CITIC Pacific, Sinofert, Tingyi, Maanshan Iron and Steel, Huabao International Holdings, SPG Land, Sinopec Shanghai Petrochemical, Angang Steel, Sinopec, China Railway Group, Dongfeng Motor, China Communications Services, China Agri-Industries Holdings, Sany Heavy Equipment International, China High Speed Transmission Equipment Group, China Eastern Airlines, China Overseas Land & Investment, Beijing Capital International Airport, Tencent Holdings, China Telecom, Asia Cement China, Air China, China Unicom, ZTE Corp., Shimao Property Holdings, Franshion Properties, China Resources Power, Anhui Tianda Oil Pipe, Leoch Int'l, PetroChina, CNOOC, Trinity, China Vanadium Titano-Magnetite Mining, Huaneng Power International, Anhui Conch Cement, China Longyuan Power Group, China Construction Bank, China Mobile, Longfor Properties, China Taiping Insurance, Datang International Power Generation, Lenovo Group, China CITIC Bank, Hengan International, China Southern Airlines, Huadian Power International, Dongfang Electric Corporation, China Shenhua Energy, Sinopharm, China Resources Land, China Railway Construction, China Resources Gas, COSCO Pacific, CITIC Resources Holdings, Minmetals Resources Limited, Agricultural Bank of China, SITC International, China Resources Cement Holdings, China Kingstone Mining, Hidili Industry, Industrial & Commercial Bank of China, Metallurgical Corporation of China China Communications Construction KWG Prop Intime Department Store Belle Kingboard Laminates Holdings SINOMA Xingda International Holdings Metallurgical Corporation of China, China Communications Construction, KWG Prop, Intime Department Store, Belle, Kingboard Laminates Holdings, SINOMA, Xingda International Holdings, China Minsheng Banking, BBMG, AAC Acoustic Technologies Holdings, China Gold International Resources, Xinjiang Goldwind Science & Technology, Lee & Man Paper, Ping An Insurance, Mengniu Dairy, PICC, Li Ning, Weichai Power, Aluminum Corporation of China, China Pacific Insurance, China Life Insurance, Shanghai Electric Group, Guangzhou R&F Properties, China Oilfield Services, China State Construction, Bank of Communications, Lonking Holdings, Parkson, Agile Property Holdings, Chongqing Rural Commercial Bank, Sinotruk (Hong Kong), China Dongxiang Group, United Laboratories, China Merchants Bank, China BlueChemical, Bank of China, Sun Art Retail Group Limited, Baidu.com, Sky-mobi, Mindray, Qihoo 360 Technology, Simcere Pharmaceuticals, Shangpharma, Suntech Power, 7 Days Group, Yingli Green Energy in the past 12 months. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): Xingda International Holdings, Qihoo 360 Technology, China Gold Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): Xingda International Holdings, Qihoo 360 Technology, China Gold International Resources, China Kingstone Mining, Sky-mobi, Poly (Hong Kong) Investments, Kunlun Energy, China Merchants Holdings Int'l, Kingboard Chemical, Uni-President China, CITIC Pacific, Sinofert, Sinopec Shanghai Petrochemical, Angang Steel, Sinopec, China Railway Group, China Communications Services, China Agri-Industries Holdings, Sany Heavy Equipment International, China Eastern Airlines, China Overseas Land & Investment, Beijing Capital International Airport, China Telecom, Asia Cement China, Air China, China Unicom, Franshion Properties, China Resources Power, Leoch Int'l, PetroChina, CNOOC, Trinity, China Vanadium Titano-Magnetite Mining, Huaneng Power International, China Longyuan Power Group, China Construction Bank, China Mobile, Longfor Properties, China Taiping Insurance, Datang International Power Generation, Lenovo Group, China CITIC Bank, China Southern Airlines, Huadian Power International, Dongfang Electric Corporation, China Shenhua Energy, China Resources Land, China Railway Construction, China Resources Gas, COSCO Pacific, CITIC Resources Holdings, Mi t l R Li it d A i lt l B k f Chi SITC I t ti l Chi R C t H ldi Hidili I d t I d t i l & C i l B k f Chi Chi C i ti Minmetals Resources Limited, Agricultural Bank of China, SITC International, China Resources Cement Holdings, Hidili Industry, Industrial & Commercial Bank of China, China Communications Construction, KWG Prop, Intime Department Store, Kingboard Laminates Holdings, China Minsheng Banking, BBMG, Xinjiang Goldwind Science & Technology, Ping An Insurance, PICC, Weichai Power, Aluminum Corporation of China, China Pacific Insurance, China Life Insurance, Guangzhou R&F Properties, China Oilfield Services, China State Construction, Bank of Communications, Sinotruk (Hong Kong), China Merchants Bank, China BlueChemical, Bank of China, Sun Art Retail Group Limited, HiSoft Technology International, Shangpharma, VanceInfo Technologies. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, securities-related: Poly (Hong Kong) Investments, Kunlun Energy, China Merchants Holdings Int'l, Kingboard Chemical, Want Want China, Uni-President China, CITIC Pacific, Sinofert, Tingyi, Sinopec Shanghai Petrochemical,
Angang Steel, Sinopec, China Railway Group, China Communications Services, China Agri-Industries Holdings, Sany Heavy Equipment International, China High Speed Transmission Equipment g g p y p g g y y q p g p q pGroup, China Eastern Airlines, China Overseas Land & Investment, Beijing Capital International Airport, China Telecom, Air China, China Unicom, ZTE Corp., Franshion Properties, China Resources Power, Anhui Tianda Oil Pipe, Leoch Int'l, PetroChina, CNOOC, Trinity, China Vanadium Titano-Magnetite Mining, Huaneng Power International, China Longyuan Power Group, China Construction Bank, China Mobile, China Taiping Insurance, Datang International Power Generation, Lenovo Group, China CITIC Bank, China Southern Airlines, Huadian Power International, Dongfang Electric Corporation, China Shenhua Energy, Sinopharm, China Resources Land, Brilliance China, China Railway Construction, China Resources Gas, CITIC Resources Holdings, Minmetals Resources Limited, Agricultural Bank of China, SITC International, China Resources Cement Holdings, China Kingstone Mining, Industrial & Commercial Bank of China, Metallurgical Corporation of China, China Communications Construction, KWG Prop, Intime Department Store, Kingboard Laminates Holdings, Xingda International Holdings, China Minsheng Banking, BBMG, China Gold International Resources Xinjiang Goldwind Science & Technology Lee & Man Paper Ping An Insurance PICC Aluminum Corporation of China China Pacific Insurance China Life China Gold International Resources, Xinjiang Goldwind Science & Technology, Lee & Man Paper, Ping An Insurance, PICC, Aluminum Corporation of China, China Pacific Insurance, China Life Insurance, Shanghai Electric Group, China Oilfield Services, Golden Eagle, China State Construction, Bank of Communications, Lonking Holdings, Chongqing Rural Commercial Bank, Sinotruk (Hong Kong), United Laboratories, China Merchants Bank, China BlueChemical, Bank of China, Sun Art Retail Group Limited, Baidu.com, Mindray, Qihoo 360 Technology, Shangpharma, Yingli Green Energy. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, non-securities-related: Poly (Hong Kong) Investments, Kunlun Energy, China Merchants Holdings Int'l, Kingboard Chemical, Want Want China, Uni-President China, CITIC Pacific, Sinofert, Tingyi, Maanshan Iron and Steel, Huabao International Holdings SPG Land Sinopec Shanghai Petrochemical Angang Steel Sinopec China Railway Group Dongfeng Motor China Communications Services China Agri-Huabao International Holdings, SPG Land, Sinopec Shanghai Petrochemical, Angang Steel, Sinopec, China Railway Group, Dongfeng Motor, China Communications Services, China Agri-Industries Holdings, Sany Heavy Equipment International, China High Speed Transmission Equipment Group, China Eastern Airlines, China Overseas Land & Investment, Beijing Capital International Airport, Tencent Holdings, China Telecom, Asia Cement China, Air China, China Unicom, ZTE Corp., Shimao Property Holdings, Franshion Properties, China Resources Power, Anhui Tianda Oil Pipe, Leoch Int'l, PetroChina, CNOOC, Trinity, China Vanadium Titano-Magnetite Mining, Huaneng Power International, Anhui Conch Cement, China Longyuan Power Group, China Construction Bank, China Mobile, Longfor Properties, China Taiping Insurance, Datang International Power Generation, Lenovo Group, China CITIC Bank, Hengan International, China Southern Airlines, Huadian Power International, Dongfang Electric Corporation, China Shenhua Energy, Sinopharm, China Resources Land, China Railway Construction, China Resources Gas, COSCO Pacific, CITIC Resources Holdings, Minmetals Resources Limited, Agricultural Bank of China, SITC International, China Resources Cement Holdings, China Kingstone Mining, Hidili Industry, Industrial & Commercial Bank of China, Metallurgical Corporation of China, China Communications Construction, KWG Prop, Intime Department Store, Belle, Kingboard Laminates Holdings, SINOMA, China Minsheng Banking, BBMG, AAC Acoustic Technologies Holdings, Xinjiang Goldwind Science & Technology, Lee & Man Paper, Ping An Insurance, Mengniu Dairy, PICC, Li Ning, Weichai Power, Aluminum Corporation of China, China Life Insurance, Shanghai Electric Group, Guangzhou R&F Properties, China Oilfield Services, China State Construction, Bank of Communications, Lonking Holdings, Parkson, Agile Property Holdings, Chongqing Rural Commercial Bank, Sinotruk (Hong Kong), China Dongxiang Group, United Laboratories, China Merchants Bank, China BlueChemical, Bank of China, Sun Art Retail Group Limited, Baidu.com, Sky-mobi, Mindray, Qihoo 360 Technology, Simcere Pharmaceuticals, Shangpharma, Suntech Power, 7 Days Group, Yingli Green Energy. Citi Gl b l M k t I ffili t i d ti i th t 12 th f Xi d I t ti l H ldi Citigroup Global Markets Inc. or an affiliate received compensation in the past 12 months from Xingda International Holdings. Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability which includes investment banking revenues. The Firm is a market maker in the publicly traded equity securities of Kunlun Energy, Tsingtao Brewery, CITIC Pacific, Tingyi, Maanshan Iron and Steel, Angang Steel, Jiangxi Copper, Sinopec, China Railway Group, Dongfeng Motor, China Agri-Industries Holdings, China High Speed Transmission Equipment Group, China Overseas Land & Investment, Tencent Holdings, China Telecom, Air China, China Unicom, ZTE Corp., Shimao Property Holdings, PetroChina, CNOOC, Anhui Conch Cement, China Longyuan Power Group, China Construction Bank, China Mobile, Datang , , p , p y g , , , , gy p, , , gInternational Power Generation, Lenovo Group, China CITIC Bank, Hengan International, Shandong Weigao Group Medical Polymer, China Yurun Food, China Shenhua Energy, Brilliance China, Zoomlion Heavy Industry, China Railway Construction, Agricultural Bank of China, Industrial & Commercial Bank of China, China Communications Construction, Belle, Kingboard Laminates Holdings, BBMG, AAC Acoustic Technologies Holdings, Anta Sports Products, Xinjiang Goldwind Science & Technology, Ping An Insurance, Mengniu Dairy, PICC, Weichai Power, Aluminum Corporation of China, China Pacific Insurance, China Life Insurance, Guangzhou R&F Properties, China Oilfield Services, China National Building Material, Bank of Communications, Lonking Holdings, GCL-Poly Energy Holdings, China Merchants Bank, Bank of China, China Molybdenum, Baidu.com, HiSoft Technology International, Sky-mobi, Sina Corp..
For important disclosures (including copies of historical disclosures) regarding the companies that are the subject of this Citi Investment Research & Analysis product ("the Product"), please p ( g p ) g g p j y p ( ) pcontact Citi Investment Research & Analysis, 388 Greenwich Street, 28th Floor, New York, NY, 10013, Attention: Legal/Compliance [E6WYB6412478]. In addition, the same important disclosures, with the exception of the Valuation and Risk assessments and historical disclosures, are contained on the Firm's disclosure website at www.citigroupgeo.com. Valuation and Risk assessments can be found in the text of the most recent research note/report regarding the subject company. Historical disclosures (for up to the past three years) will be provided upon request. Citi Investment Research & Analysis Ratings Distribution 12 Month Rating Relative Rating Data current as of 31 Dec 2011 Buy Hold Sell Buy Hold SellCiti Investment Research & Analysis Global Fundamental Coverage 57% 34% 9% 10% 79% 10%
% of companies in each rating category that are investment banking clients 45% 41% 40% 49% 43% 41%Guide to Citi Investment Research & Analysis (CIRA) Fundamental Research Investment Ratings: CIRA's stock recommendations include an investment rating and an optional risk rating to highlight high risk stocks. Risk rating takes into account both price volatility and fundamental criteria. Stocks will either have no risk rating or a High risk rating assigned. Investment Ratings: CIRA's investment ratings are Buy, Neutral and Sell. Our ratings are a function of analyst expectations of expected total return ("ETR") and risk. ETR is the sum of the forecast price appreciation (or depreciation) plus the dividend yield for a stock within the next 12 months The Investment rating definitions are: Buy (1) ETR of 15% or more or 25% or more for forecast price appreciation (or depreciation) plus the dividend yield for a stock within the next 12 months. The Investment rating definitions are: Buy (1) ETR of 15% or more or 25% or more for High risk stocks; and Sell (3) for negative ETR. Any covered stock not assigned a Buy or a Sell is a Neutral (2). For stocks rated Neutral (2), if an analyst believes that there are insufficient valuation drivers and/or investment catalysts to derive a positive or negative investment view, they may elect with the approval of CIRA management not to assign a target price and, thus, not derive an ETR. Analysts may place covered stocks "Under Review" in response to exceptional circumstances (e.g. lack of information critical to the analyst's thesis) affecting the company and / or trading in the company's securities (e.g. trading suspension). As soon as practically possible, the analyst will publish a note re-establishing a rating and investment thesis. To satisfy regulatory requirements, we correspond Under Review and Neutral to Hold in our ratings distribution table for our 12-month fundamental rating system. However, we reiterate that we do not consider Under Review to be a recommendation. Relative three-month ratings: CIRA may also assign a three-month relative call (or rating) to a stock to highlight expected out-performance (most preferred) or under-performance (least preferred) versus the geographic and industry sector over a 3 month period. The relative call may highlight a specific near-term catalyst or event impacting the company or the market that is anticipated to have a short-term price impact on the equity securities of the company. Absent any specific catalyst the analyst(s) will indicate the most and least preferred stocks in the universe of stocks under consideration, explaining the basis for this short-term view. This three-month view may be different from and does not affect a stock's fundamental equity rating, which reflects a longer-term total absolute return expectation. For purposes of NASD/NYSE ratings-distribution-disclosure rules, most preferred calls correspond to a buy recommendation and least preferred calls correspond to a sell recommendation. Any stock not assigned to a most preferred or least preferred call is considered non-relative-rated (NRR). For purposes of NASD/NYSE ratings-distribution-disclosure rules we correspond NRR to Hold in our ratings distribution table for our 3-month relative rating system However we reiterate that we do not consider NRR to be a recommendation disclosure rules we correspond NRR to Hold in our ratings distribution table for our 3 month relative rating system. However, we reiterate that we do not consider NRR to be a recommendation. Prior to October 8, 2011, the firm's stock recommendation system included a risk rating and an investment rating. Risk ratings, which took into account both price volatility and fundamental criteria, were: Low (L), Medium (M), High (H), and Speculative (S). Investment Ratings of Buy, Hold and Sell were a function of CIRA's expectation of total return (forecast price appreciation and dividend yield within the next 12 months) and risk rating. Additionally, analysts could have placed covered stocks "Under Review" in response to exceptional circumstances (e.g. lack of information critical to the analyst's thesis) affecting the company and/or trading in the company's securities (e.g. trading suspension). Stocks placed "Under Review" were monitored daily by management and as practically possible, the analyst published a note re-establishing a rating and investment thesis. For securities in developed markets (US, UK, Europe, Japan, and Australia/New Zealand), investment ratings were:Buy (1) (expected total return of 10% or more for Low-Risk stocks, 15% or more for Medium-Risk stocks, 20% or more for High-Risk stocks, and 35% or more for investment ratings were:Buy (1) (expected total return of 10% or more for Low Risk stocks, 15% or more for Medium Risk stocks, 20% or more for High Risk stocks, and 35% or more for Speculative stocks); Hold (2) (0%-10% for Low-Risk stocks, 0%-15% for Medium-Risk stocks, 0%-20% for High-Risk stocks, and 0%-35% for Speculative stocks); and Sell (3) (negative total return). For securities in emerging markets (Asia Pacific, Emerging Europe/Middle East/Africa, and Latin America), investment ratings were:Buy (1) (expected total return of 15% or more for Low-Risk stocks, 20% or more for Medium-Risk stocks, 30% or more for High-Risk stocks, and 40% or more for Speculative stocks); Hold (2) (5%-15% for Low-Risk stocks, 10%-20% for Medium-Risk stocks, 15%-30% for High-Risk stocks, and 20%-40% for Speculative stocks); and Sell (3) (5% or less for Low-Risk stocks, 10% or less for Medium-Risk stocks, 15% or less for High-Risk stocks, and 20% or less for Speculative stocks).
Investment ratings are determined by the ranges described above at the time of initiation of coverage, a change in investment and/or risk rating, or a change in target price (subject to limited g y g g g g g g p ( jmanagement discretion). At other times, the expected total returns may fall outside of these ranges because of market price movements and/or other short-term volatility or trading patterns. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock's expected performance and risk. NON-US RESEARCH ANALYST DISCLOSURES Non-US research analysts who have prepared this report (i.e., all research analysts listed below other than those identified as employed by Citigroup Global Markets Inc.) are not registered/qualified as research analysts with FINRA. Such research analysts may not be associated persons of the member organization and therefore may not be subject to the NYSE Rule 472 and NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. The legal entities employing the authors of this report are listed below: Citigroup Global Markets Asia Minggao Shen; Catherine Lim; Timothy Lam; Simon Ho, CFA; Jenny N Zhen; Eric Lau; Darwin Lam, CFA; Pierre
Lau, CFA; Jasmine Bai; Bin Liu; Vivian Tao; George Choi; Richard Yeh; Ravi Sarathy; Oscar Choi; Gerwin Ho; Marco Sze; Paddy Ran; Scarlett Y Chen, CFA; Hanzhi Ding; Aaron Ge, CFA; Graham Cunningham; Eddie Lau; Anil Daswani; Oscar Yee; Jimmy Wong; Rigan Wong; Paul Gong; Mark Liinamaa; Grace Lam
Citigroup Global Markets Taiwan Securities Co. Limited Kevin Chang; Wei Chen Citigroup Global Markets Inc Timothy M Arcuri
OTHER DISCLOSURES Citigroup Global Markets Inc. and/or its affiliates has a significant financial interest in relation to Kingboard Chemical, Tingyi, Angang Steel, China Unicom, Lenovo Group, Agricultural Bank of China, China Minsheng Banking, Ping An Insurance, Agile Property Holdings. (For an explanation of the determination of significant financial interest, please refer to the policy for managing conflicts of interest which can be found at www citigroupgeo com ) conflicts of interest which can be found at www.citigroupgeo.com.) Citigroup Global Markets Inc. or its affiliates beneficially owns 2% or more of any class of common equity securities of Maanshan Iron and Steel, Angang Steel, Sinopec, ZTE Corp., Shimao Property Holdings, Anhui Conch Cement, Dongfang Electric Corporation, Zoomlion Heavy Industry, China Railway Construction, Minmetals Resources Limited, China Minsheng Banking, China National Building Material, Lonking Holdings. Citigroup Global Markets Inc. or its affiliates beneficially owns 10% or more of any class of common equity securities of Xinjiang Goldwind Science & Technology. Citigroup Global Markets Inc. or its affiliates beneficially owns 5% or more of any class of common equity securities of China High Speed Transmission Equipment Group, Weichai Power. Citigroup Global Markets Inc. or its affiliates beneficially owns 5% or more of any class of common equity securities of China High Speed Transmission Equipment Group, Weichai Power. For securities recommended in the Product in which the Firm is not a market maker, the Firm is a liquidity provider in the issuers' financial instruments and may act as principal in connection with such transactions. The Firm is a regular issuer of traded financial instruments linked to securities that may have been recommended in the Product. The Firm regularly trades in the securities of the issuer(s) discussed in the Product. The Firm may engage in securities transactions in a manner inconsistent with the Product and, with respect to securities covered by the Product, will buy or sell from customers on a principal basis. Securities recommended, offered, or sold by the Firm: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks including the possible loss of the principal amount invested Although information has been obtained from and is based upon institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Although information has been obtained from and is based upon sources that the Firm believes to be reliable, we do not guarantee its accuracy and it may be incomplete and condensed. Note, however, that the Firm has taken all reasonable steps to determine the accuracy and completeness of the disclosures made in the Important Disclosures section of the Product. The Firm's research department has received assistance from the subject company(ies) referred to in this Product including, but not limited to, discussions with management of the subject company(ies). Firm policy prohibits research analysts from sending draft research to subject companies. However, it should be presumed that the author of the Product has had discussions with the subject company to ensure factual accuracy prior to publication. All opinions, projections and estimates constitute the judgment of the author as of the date of the Product and these, plus any other information contained in the Product, are subject to change without notice.
Prices and availability of financial instruments also are subject to change without notice. Notwithstanding other departments within the Firm advising the companies discussed in this Product, y j g g p g pinformation obtained in such role is not used in the preparation of the Product. Although Citi Investment Research & Analysis (CIRA) does not set a predetermined frequency for publication, if the Product is a fundamental research report, it is the intention of CIRA to provide research coverage of the/those issuer(s) mentioned therein, including in response to news affecting this issuer, subject to applicable quiet periods and capacity constraints. The Product is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in the Product must take into account existing public information on such security or any registered prospectus. Investing in non-U.S. securities, including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of the U.S. Securities and Exchange Commission. There may be limited information available on foreign securities. Foreign companies are generally not subject to uniform audit and reporting standards, practices and requirements comparable to those in the U.S. Securities of some foreign companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. In addition, exchange rate movements may have an adverse effect on the value of an investment in a foreign stock and its corresponding dividend payment for U.S. investors. Net dividends to ADR investors are estimated, using withholding tax rates conventions, deemed accurate, but investors are urged to consult their tax advisor for exact dividend computations. Investors who have received the Product from the Firm may be prohibited in certain states or other jurisdictions from purchasing securities mentioned in the Product from the Firm. Please ask your Financial Consultant for additional details. Citigroup Global Markets Inc. takes responsibility for the Product in the United States. Any orders by US investors resulting from the information contained in the Product may be placed only through Citigroup Global Markets Inc. Important Disclosures for Morgan Stanley Smith Barney LLC Customers: Morgan Stanley & Co. LLC (Morgan Stanley) research reports may be available about the companies that are the subject of this Citi Investment Research & Analysis (CIRA) research report. Ask your Financial Advisor or use smithbarney.com to view any available Morgan Stanley research reports in addition to CIRA research reports. Important disclosure regarding the relationship between the companies that are the subject of this CIRA research report and Morgan Stanley Smith Barney LLC and its affiliates are available at the Morgan Stanley Smith Barney disclosure website at www.morganstanleysmithbarney.com/researchdisclosures. For Morgan Stanley and Citigroup Global Markets, Inc. specific disclosures, you may refer to www.morganstanley.com/researchdisclosures and https://www citigroupgeo com/geopublic/Disclosures/index a html https://www.citigroupgeo.com/geopublic/Disclosures/index_a.html. This CIRA research report has been reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval was conducted by the same person who reviewed this research report on behalf of CIRA. This could create a conflict of interest. The Citigroup legal entity that takes responsibility for the production of the Product is the legal entity which the first named author is employed by. The Product is made available in Australia through Citigroup Global Markets Australia Pty Ltd. (ABN 64 003 114 832 and AFSL No. 240992), participant of the ASX Group and regulated by the Australian Securities & Investments Commission. Citigroup Centre, 2 Park Street, Sydney, NSW 2000. The Product is made available in Australia to Private Banking wholesale clients through Citigroup Pty Limited (ABN 88 004 325 080 and AFSL 238098). Citigroup Pty Limited provides all financial product advice to Australian Private Banking wholesale clients through bankers and relationship managers. If there is any ) g p y p p g g p g ydoubt about the suitability of investments held in Citigroup Private Bank accounts, investors should contact the Citigroup Private Bank in Australia. Citigroup companies may compensate affiliates and their representatives for providing products and services to clients. The Product is made available in Brazil by Citigroup Global Markets Brasil - CCTVM SA, which is regulated by CVM - Comissão de Valores Mobiliários, BACEN - Brazilian Central Bank, APIMEC - Associação dos Analistas e Profissionais de Investimento do Mercado de Capitais and ANBID - Associação Nacional dos Bancos de Investimento. Av. Paulista, 1111 - 11º andar - CEP. 01311920 - São Paulo - SP. If the Product is being made available in certain provinces of Canada by Citigroup Global Markets (Canada) Inc. ("CGM Canada"), CGM Canada has approved the Product. Citigroup Place, 123 Front Street West, Suite 1100, Toronto, Ontario M5J 2M3. This product is available in Chile through Banchile Corredores de Bolsa S.A., an indirect subsidiary of Citigroup Inc., which is regulated by the Superintendencia de Valores y Seguros. Agustinas 975, piso 2, Santiago, Chile. The Product is made available in France by Citigroup Global Markets Limited which is authorised and regulated by Financial Services Authority 1 5 Rue Paul Cézanne 8ème Paris France The Product is made available in France by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. 1-5 Rue Paul Cézanne, 8ème, Paris, France. The Product is distributed in Germany by Citigroup Global Markets Deutschland AG ("CGMD"), which is regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin). CGMD, Reuterweg 16, 60323 Frankfurt am Main. Research which relates to "securities" (as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)) is issued in Hong Kong by, or on behalf of, Citigroup Global Markets Asia Limited which takes full responsibility for its content. Citigroup Global Markets Asia Ltd. is regulated by Hong Kong Securities and Futures Commission. If the Research is made available through Citibank, N.A., Hong Kong Branch, for its clients in Citi Private Bank, it is made available by Citibank N.A., Citibank Tower, Citibank Plaza, 3 Garden Road, Hong Kong. Citibank N.A. is regulated by the Hong Kong Monetary Authority. Please contact your Private Banker in Citibank N.A., Hong Kong, Branch if you have any queries on or any matters
arising from or in connection with this document. The Product is made available in India by Citigroup Global Markets India Private Limited, which is regulated by Securities and Exchange Board g y g p g y gof India. Bakhtawar, Nariman Point, Mumbai 400-021. The Product is made available in Indonesia through PT Citigroup Securities Indonesia. 5/F, Citibank Tower, Bapindo Plaza, Jl. Jend. Sudirman Kav. 54-55, Jakarta 12190. Neither this Product nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesian residents except in compliance with applicable capital market laws and regulations. This Product is not an offer of securities in Indonesia. The securities referred to in this Product have not been registered with the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market laws and regulations. The Product is made available in Israel through Citibank NA, regulated by the Bank of Israel and the Israeli Securities Authority. Citibank, N.A, Platinum Building, 21 Ha'arba'ah St Tel Aviv Israel The Product is made available in Italy by Citigroup Global Markets Limited which is authorised and regulated by Financial Services Authority Via dei Mercanti 12 Milan St, Tel Aviv, Israel. The Product is made available in Italy by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. Via dei Mercanti, 12, Milan, 20121, Italy. The Product is made available in Japan by Citigroup Global Markets Japan Inc. ("CGMJ"), which is regulated by Financial Services Agency, Securities and Exchange Surveillance Commission, Japan Securities Dealers Association, Tokyo Stock Exchange and Osaka Securities Exchange. Shin-Marunouchi Building, 1-5-1 Marunouchi, Chiyoda-ku, Tokyo 100-6520 Japan. If the Product was distributed by SMBC Nikko Securities Inc. it is being so distributed under license. In the event that an error is found in an CGMJ research report, a revised version will be posted on the Firm's Global Equities Online (GEO) website. If you have questions regarding GEO, please call (81 3) 6270-3019 for help. The Product is made available in Korea by Citigroup Global Markets Korea Securities Ltd., which is regulated by the Financial Services Commission, the Financial Supervisory Service and the Korea Financial Investment Association (KOFIA). Citibank Building, 39 Da-dong, Jung-gu, Seoul 110-180, Korea. KOFIA makes available registration information of research analysts on its website. Please visit the following website if you wish to find KOFIA registration information on research analysts of Citigroup Global Markets Korea Securities Ltd. http://dis.kofia.or.kr/fs/dis2/fundMgr/DISFundMgrAnalystPop.jsp?companyCd2=A03030&pageDiv=02. The Product is made available in Malaysia by Citigroup Global Markets Malaysia Sdn Bhd (Company No. 460819-D) (“CGMM”) to its clients and CGMM takes responsibility for its contents. CGMM is regulated by the Securities Commission of Malaysia. Please contact CGMM at Level 43 Menara Citibank, 165 Jalan Ampang, 50450 Kuala Lumpur, Malaysia in respect of any matters arising from, or in connection with, the Product. The Product is made available in Mexico by Acciones y Valores Banamex, S.A. De C. V., Casa de Bolsa, Integrante del Grupo Financiero Banamex ("Accival") which is a wholly owned subsidiary of Citigroup Inc. and is regulated by Comision Nacional Bancaria y de Valores. Reforma 398, Col. Juarez, 06600 Mexico, D.F. In New Zealand the Product is made available to ‘wholesale clients’ only as defined by s5C(1) of the Financial Advisers Act 2008 (‘FAA’) through Citigroup Global Markets Australia Pty Ltd (ABN 64 003 114 832 and AFSL No 240992) an overseas financial adviser as defined by the FAA Financial Advisers Act 2008 ( FAA ) through Citigroup Global Markets Australia Pty Ltd (ABN 64 003 114 832 and AFSL No. 240992), an overseas financial adviser as defined by the FAA, participant of the ASX Group and regulated by the Australian Securities & Investments Commission. Citigroup Centre, 2 Park Street, Sydney, NSW 2000. The Product is made available in Pakistan by Citibank N.A. Pakistan branch, which is regulated by the State Bank of Pakistan and Securities Exchange Commission, Pakistan. AWT Plaza, 1.1. Chundrigar Road, P.O. Box 4889, Karachi-74200. The Product is made available in the Philippines through Citicorp Financial Services and Insurance Brokerage Philippines, Inc., which is regulated by the Philippines Securities and Exchange Commission. 20th Floor Citibank Square Bldg. The Product is made available in the Philippines through Citibank NA Philippines branch, Citibank Tower, 8741 Paseo De Roxas, Makati City, Manila. Citibank NA Philippines NA is regulated by The Bangko Sentral ng Pilipinas. The Product is made available in Poland by Dom Maklerski Banku Handlowego SA an indirect subsidiary of Citigroup Inc., which is regulated by Komisja Nadzoru Finansowego. Dom Maklerski Banku Handlowego S.A. ul.Senatorska 16, 00-923 Warszawa. The Product is made available in the Russian Federation through ZAO Citibank, which is licensed to carry out banking activities in the Russian Federation in accordance with the general banking license issued by the Central Bank of the Russian Federation and brokerage activities in accordance with the license issued by the Federal Service for Financial Markets. Neither the Product nor any information contained in the Product shall be considered as advertising the securities mentioned in this report within the territory of the Russian Federation or outside the Russian Federation. The Product does not constitute an appraisal within the meaning of the Federal Law of the Russian Federation of 29 July 1998 No. 135-FZ (as amended) On Appraisal Activities in the Russian Federation. 8-10 Gasheka Street, 125047 Moscow. The Product is made available in Singapore through Citigroup Global Markets Singapore Pte. Ltd. (“CGMSPL”), a capital markets services license holder, and regulated by Monetary Authority of Singapore. Please contact CGMSPL at 1 Temasek Avenue, #39-02 Millenia Tower, Singapore 039192, in respect of any matters arising from, or in connection with the analysis of this document This report is intended for recipients who are accredited expert and institutional investors as defined under the Securities and Futures Act (Cap 289) The with, the analysis of this document. This report is intended for recipients who are accredited, expert and institutional investors as defined under the Securities and Futures Act (Cap. 289). The Product is made available by The Citigroup Private Bank in Singapore through Citibank, N.A., Singapore Branch, a licensed bank in Singapore that is regulated by Monetary Authority of Singapore. Please contact your Private Banker in Citibank N.A., Singapore Branch if you have any queries on or any matters arising from or in connection with this document. This report is intended for recipients who are accredited, expert and institutional investors as defined under the Securities and Futures Act (Cap. 289). This report is distributed in Singapore by Citibank Singapore Ltd ("CSL") to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this report. Please contact your Citigold//Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this report. This report is intended for recipients who are
accredited investors as defined under the Securities and Futures Act (Cap. 289). Citigroup Global Markets (Pty) Ltd. is incorporated in the Republic of South Africa (company registration ( p ) g p ( y) p p ( p y gnumber 2000/025866/07) and its registered office is at 145 West Street, Sandton, 2196, Saxonwold. Citigroup Global Markets (Pty) Ltd. is regulated by JSE Securities Exchange South Africa, South African Reserve Bank and the Financial Services Board. The investments and services contained herein are not available to private customers in South Africa. The Product is made available in Spain by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. 29 Jose Ortega Y Gassef, 4th Floor, Madrid, 28006, Spain. The Product is made available in the Republic of China through Citigroup Global Markets Taiwan Securities Company Ltd. ("CGMTS"), 14 and 15F, No. 1, Songzhi Road, Taipei 110, Taiwan and/or through Citibank Securities (Taiwan) Company Limited ("CSTL"), 14 and 15F, No. 1, Songzhi Road, Taipei 110, Taiwan, subject to the respective license scope of each entity and the applicable laws and regulations in the Republic of China. CGMTS and CSTL are both regulated by the Securities and Futures Bureau of the Financial Supervisory Commission of Taiwan, the Republic of China No portion of the Product may be reproduced or quoted in the Republic of China by the press or any third parties [without the written authorization of CGMTS and CSTL] If the Product China. No portion of the Product may be reproduced or quoted in the Republic of China by the press or any third parties [without the written authorization of CGMTS and CSTL]. If the Product covers securities which are not allowed to be offered or traded in the Republic of China, neither the Product nor any information contained in the Product shall be considered as advertising the securities or making recommendation of the securities in the Republic of China. The Product is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security or financial products. Any decision to purchase securities or financial products mentioned in the Product must take into account existing public information on such security or the financial products or any registered prospectus. The Product is made available in Thailand through Citicorp Securities (Thailand) Ltd., which is regulated by the Securities and Exchange Commission of Thailand. 18/F, 22/F and 29/F, 82 North Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand. The Product is made available in Turkey through Citibank AS which is regulated by Capital Markets Board. Tekfen Tower, Eski Buyukdere Caddesi # 209 Kat 2B, 23294 Levent, Istanbul, Turkey. In the U.A.E, these materials (the "Materials") are communicated by Citigroup Global Markets Limited, DIFC branch ("CGML"), an entity registered in the Dubai International Financial Center ("DIFC") and licensed and regulated by the Dubai Financial Services Authority ("DFSA") to Professional Clients and Market Counterparties only and should not be relied upon or distributed to Retail Clients. A distribution of the different CIRA ratings distribution, in percentage terms for Investments in each sector covered is made available on request. Financial products and/or services to which the Materials relate will only be made available to Professional Clients and Market Counterparties. The Product is made available in United Kingdom by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. This material may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA and further details as to where this may be the case are available upon request in respect of this material. Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB. The Product is made available in United States by Citigroup Global Markets Inc which is a member of FINRA and registered with the US Securities and Exchange Commission 388 Greenwich Street New York NY 10013 Unless specified to the contrary Global Markets Inc, which is a member of FINRA and registered with the US Securities and Exchange Commission. 388 Greenwich Street, New York, NY 10013. Unless specified to the contrary, within EU Member States, the Product is made available by Citigroup Global Markets Limited, which is regulated by Financial Services Authority. Pursuant to Comissão de Valores Mobiliários Rule 483, Citi is required to disclose whether a Citi related company or business has a commercial relationship with the subject company. Considering that Citi operates multiple businesses in more than 100 countries around the world, it is likely that Citi has a commercial relationship with the subject company. Many European regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising as a result of publication or distribution of investment research. The policy applicable to CIRA's Products can be found at www.citigroupgeo.com. Compensation of equity research analysts is determined by equity research management and Citigroup's senior management and is not linked to specific transactions or recommendations. The Product may have been distributed simultaneously, in multiple formats, to the Firm's worldwide institutional and retail customers. The Product is not to be construed as providing investment services in any jurisdiction where the provision of such services would not be permitted. Subject to the nature and contents of the Product, the investments described therein are subject to fluctuations in price and/or value and investors may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Certain investments contained in the Product may have tax implications for private customers whereby levels and basis of taxation may be subject to change. If in doubt, investors should seek advice from a tax adviser. The Product does not purport to identify the nature of the specific market or other risks associated with a particular transaction. Advice in the Product is general and should not be construed as personal advice given it has been prepared without taking account of the objectives financial situation or needs of any particular investor Accordingly investors should before acting on the advice consider the appropriateness of prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. Prior to acquiring any financial product, it is the client's responsibility to obtain the relevant offer document for the product and consider it before making a decision as to whether to purchase the product. With the exception of our product that is made available only to Qualified Institutional Buyers (QIBs), CIRA concurrently disseminates its research via proprietary and non-proprietary electronic distribution platforms. Periodically, individual CIRA analysts may also opt to circulate research posted on such platforms to one or more clients by email. Such email distribution is discretionary and is done only after the research has been disseminated via the aforementioned distribution channels. CIRA simultaneously distributes product that is limited to QIBs only through email
distribution. The level and types of services provided by CIRA analysts to clients may vary depending on various factors such as the client’s individual preferences as to the frequency and manner of receiving communications from analysts, the client’s risk profile and investment focus and perspective (e.g. market-wide, sector specific, long term, short-term etc.), the size and scope of the overall client relationship with Citi and legal and regulatory constraints. © 2012 Citigroup Global Markets Inc. Citi Investment Research & Analysis is a division of Citigroup Global Markets Inc. Citi and Citi with Arc Design are trademarks and service marks of Citigroup Inc. and its affiliates and are used and registered throughout the world. All rights reserved. Any unauthorized use, duplication, redistribution or disclosure of this report (the “Product”), including, but not limited to, redistribution of the Product by electronic mail, posting of the Product on a website or page, and/or providing to a third party a link to the Product, is prohibited by law and will result in prosecution. The information contained in the Product is intended solely for the recipient and may not be further distributed by the recipient to any third party. Where included in this report, MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates The Firm accepts no liability whatsoever for the actions of third parties The Product may provide the addresses of or contain hyperlinks to indexes are services marks of MSCI and its affiliates. The Firm accepts no liability whatsoever for the actions of third parties. The Product may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the Product refers to website material of the Firm, the Firm has not reviewed the linked site. Equally, except to the extent to which the Product refers to website material of the Firm, the Firm takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or hyperlink (including addresses or hyperlinks to website material of the Firm) is provided solely for your convenience and information and the content of the linked site does not in anyway form part of this document. Accessing such website or following such link through the Product or the website of the Firm shall be at your own risk and the Firm shall have no liability arising out of, or in connection with, any such referenced website. ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of any transaction contemplated hereby ("Transaction"). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisorshould seek advice based on your particular circumstances from an independent tax advisor.Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the information contained herein and the existence of and proposed terms for any Transaction.Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that g y g g , g ( y y ) y p , y y gfrom the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction. We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number. We may also request corporate formation documents, or other forms of identification, to verify information provided.Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without
© 2012 Citibank, N.A. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.
© 2012 Citigroup Inc. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.
any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at any time.Although this material may contain publicly available information about Citi corporate bond research, fixed income strategy or economic and market analysis, Citi policy (i) prohibits employees from offering, directly or indirectly, a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation; and (ii) prohibits analysts from being compensated for specific recommendations or views contained in research reports. So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citi has enacted policies and procedures designed to limit communications between its investment banking and research personnel to specifically prescribed circumstances.
Citi b li th t t i bilit i d b i ti W k l l ith li t fi i l i tit ti NGO d th t t fi l ti t li t h d l i d t t d d
g p g g g p g g
Citi believes that sustainability is good business practice. We work closely with our clients, peer financial institutions, NGOs and other partners to finance solutions to climate change, develop industry standards,reduce our own environmental footprint, and engage with stakeholders to advance shared learning and solutions. Highlights of Citi’s unique role in promoting sustainability include: (a) releasing in 2007 a ClimateChange Position Statement, the first US financial institution to do so; (b) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of renewableenergy, clean technology, and other carbon-emission reduction activities; (c) committing to an absolute reduction in GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (d)purchasing more than 234,000 MWh of carbon neutral power for our operations over the last three years; (e) establishing in 2008 the Carbon Principles; a framework for banks and their U.S. power clients to evaluateand address carbon risks in the financing of electric power projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g)engaging with a broad range of stakeholders on the issue of climate change to help advance understanding and solutions.
Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.
efficiency, renewable energy & mitigation
Recommended