China’s central bank has acquired a secret stake in Drax, the owner of the UK’s biggest coal-fired power station.
The People’s Bank of China is understood to have been building its stake in Drax for about a year and now owns just over 0.7pc of the company.
The stakebuilding provides a further illustration of the extent to which the Chinese government is deploying its vast foreign exchange holdings in overseas markets as it seeks greater returns than those yielded by its holdings of US treasury bills.
A Drax spokesman said the company was aware of the People’s Bank of China’s investment. “We welcome all long-term shareholders,” he said.
Although the value of the stake in Drax is relatively modest, at almost £18m, it forms just a small part of the FTSE 100 shareholdings now being amassed by China’s central bank.
In recent weeks, it has emerged that Legal & General, Old Mutual and Prudential, the insurance groups, have also been the subjects of investment from the People’s Bank of China, which has acquired shareholdings with a combined value of more than £200m.
None of the stakes have been announced publicly because they are all below the 3pc disclosure threshold applying to companies listed on the London Stock Exchange.
One reason for acquiring such small shareholdings is that Chinese officials are aware of their potential political sensitivity, although this is a relatively minor issue in Britain, where Prime Minister Gordon Brown has declared that the “door is open” to Chinese investment.
Other companies targeted by China include BP, BG Group and Barclays.
Miner Rio Tinto also has a large shareholder in the shape of Chinalco, the aluminium producer which is keen to have a voice in the potential takeover of Rio by BHP Billiton, its larger rival. Chinalco has gained approval to increase its stake and said yesterday it would consider doing so.
Questor says Yorkshire is not renowned as a hunting ground for Chinese investment funds, so the news that the country’s central bank has been building a stake in Drax may raise eyebrows. Energy security is a hot topic and Chinese funds have already acquired stakes in BG and BP. Political issues aside, the stakebuilding shows how attractive utilities’ steady returns can be in the current markets. Investors should follow China’s lead. Buy.
By Mark Kleinman
Last Updated: 12:04am BST 02/09/2008