Stakes in Hainan Airlines and Grand China Air Co., Ltd., (Grand China) are the only present Soros investments in China, though it was actually American Aviation, a company in his portfolio, instead of Soros directly or his Quantum Fund, that got involved in the investment.
In 1995 Hainan Airlines sold over 100 million shares to American Aviation at $0.2449 per share, and raised $25 million. American Aviation, with a 25% stake, became its largest shareholder and Hainan Airlines became China’s first joint venture aviation company.
In June, 1997, Hainan Airlines issued 71 million B-shares on the Shanghai Stock Exchange, and in October, 1999, another 250 million A-shares, and American Aviation’s stake was cut to 14.8%. Hainan Airlines distributed 0.8 share to every ten shares in 2000, and American Aviation now holds 108 million shares in the company.
Between 1997 and 2004, Hainan Airlines distributed cash to its shareholders six times, and American Airlines has gained $6.95 million from it.
After the 1997-98 Asian financial crisis, Soros visited China in 2001, 2004, and 2008. His second-time investment in China was again given to Hainan Airlines.
In 2005, Soros visited Hainan himself and again invested $25 million through Star-Step Limited, and gained a 18.64% stake in Grand China, which had just been set up by Hainan Airlines.
Hainan Airlines�asset liability ratio reached as high as 93.4% in 2004. Soros can get back his investment as well as profit only after Grand China goes public. According to Hainan Airlines�plan, Grand China will go pubic in Hong Kong as H-share or red chip share.
At present, the second $25 million investment is sleeping in Grand China’s IPO dream, and Soros has no plans to increase his investment in Hainan Airlines or Grand China.
Soros told Chinese reporters that the Quantum Fund was going to act as private equity fund in China, and will mainly invest in non-listed companies, and that it may also be properly involved in M&A. Entrepreneurs Soros spoke to during this visit in Shanghai, Beijing, and Hangzhou are mainly from non-listed companies or private companies planning to go public.
One of them is Yin Mingshan, chairman of Lifan Group. Yin tried to persuade Soros to realize the opportunities in China’s auto market. Lifan has already gained $90 million in investment from AIG, and has been promoting the company’s public listing.
Soros adjusted his strategy after returning to the Quantum Fund from retirement. According to figures submitted by Soros Fund Management to the SEC, in the first season of the year he cut the Fund’s holdings in Petroleo Brasileiro, the largest petroleum company in Brazil, and Potash Corp of Saskatchewan, a chemical fertilizer producer, and moved to retailers. The capital managed by Soros Fund Management totals $21 billion. The rate of investment return of the Quantum Fund was 7.2% in the first quarter, much higher than the industry average of 0.52%.
The Fund bought 9.28 million shares in Macy’s, the second largest US chain department store, and increased its stake in Lowe’s, a household product chain store, by 4.26 million shares to 5.36 million shares, also increasing its holding in Wal-Mart by 0.47 million shares to 1.82 million shares.
Another favorite of Soros is the nuclear power industry. He has bought 0.968 million shares in Entergy, the second largest nuclear power operator in the US, and invested in Plains Exploration & Production, a Huston-based petroleum company.
Soros told Chinese entrepreneurs during his China visit that uncertainties existed in the new energy industry, but he thought the nuclear area was worth investing in as it was safe and stable. Entergy also declared that the company’s new work in nuclear fusion would make nuclear power cheaper, safer, and without pollution.
Soros has also invested in some China-oriented PE funds, thinking managing fund of fund may be a strong choice.