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George Soros, a Hungarian-born financier famous for making more than US$1 billion in a day in 1992 by betting against the devaluation of the pound sterling, began his turbulent Chinese voyage in November 1995. A division of his hugely profitable Quantum Investment Fund, American Aviation LCD, decided to buy 14.8% of Shanghai-listed Hainan Airlines, China's fourth-largest carrier, for US$25 million.
At the time, the deal looked like a cracker for all concerned. It was widely acclaimed as a major milestone for China's fledgling capital markets, particularly its newly-created B share market which, unlike the A share market, had been opened to leading foreign investors. Soros's star was also reaching its peak in the 1990s, and his purchase of Hainan stock gave the mainland's leading bourse a resounding vote of confidence.
For his part, Soros saw how rapidly China was developing, and how inextricably its new economic revolution would be linked to air transport. Betting on a second-tier carrier with aggressive growth plans and autonomy from central government looked like a reasonable way to enter the sector.
Hitting turbulence
Yet like so many of the financial world's great and good, Soros has been frustrated by his high profile and ultimately soggy China investment. Between November 1995 and June 2006, Hainan Airlines returned just US$3.7 million in total in dividends to American Aviation, and nothing at all for the past four years. The US fund's investment has netted it just 0.3% in returns per annum over that period. That measures up pitifully when compared to Soros's Quantum fund, which made an average annual return of 30% in the 35 years to 2004. The carrier lost Rmb215 million (US$26.9 million) in 2005, and disappointed analysts by announcing profits of just Rmb12.1 million for the first quarter of 2006. Cash on hand is also on the wane, company figures show, having fallen to Rmb5.04 billion at the end of the first quarter 2006, from Rmb5.8 billion at end-2005.
That plummeting feeling
The one silver lining for Hainan Airlines was the approval on June 30 by the China Securities Regulatory Commission of a US$700 million private placement of Hainan stock. American Aviation and Hainan Airlines Group, the parent of Hainan Airlines, will place 2.8 billion shares to existing and...