Sunday, September 29, 2013

CHINA NUCLEAR BONDS…..The BIRTH OF NEW ALTERNATIVE ASSET CLASS


The world economy is too busy with the US FED QE tapering and about the inflow of loose capital into risky asset classes. The billions pumped into the global capital market have now turned out to be a nightmare for the capitalist community of the market. Easy money has swelled the fiscal deficit of US and also asset prices across the globe. Emerging economies made a series of returns in its asset classes from equity to debt from gold to silver every commodity made a substantial gain for the investors.

In between I came across another new class of investment where more trust and safe bet is being placed. Nuclear bonds are the new alternative asset class offered by China. Asian economy is placing more safe bets on these bonds. China General Nuclear Power announced a five-year dollar bond at 240bp over US Treasuries, to be issued through the company's uranium mining and trading subsidiary, China Uranium Development Co Ltd. On a standalone basis without government support, Moody's rated it Ba2, below investment grade. Fitch noted that: "Given limited internal cash generation and the large development capex, China Uranium's stand-alone financial profile is weak. Moody's, however, rates the company A3 and Fitch A+, based on its "strategic importance to China's nuclear energy policy. The reason behind such bonds being issued is that China has huge demand of power which needs to be met from alternative energy sources and hence nuclear based power facility is being discussed and taken into account.

Nuclear power is part of China's push toward cleaner air. The country already has 14.8 gigawatts of installed nuclear generation capacity, according to the National Development and Reform Committee. That, however, met only 1.9% of last year's power needs. The government agency recently said it plans to increase that capacity by 20% this year alone, adding 3.24 gigawatts to the grid. It also expects to approve the construction of nine new nuclear power plants and by 2020, plans to increase that nuclear capacity fourfold. All these new power plants will need uranium. China’s aggressive investments in Africa are not for the diversification of its investments neither for developing Africa. The economic reason is the exploitation and development of uranium production from the African mines. This is also the reason behind China doing investments at the back of European economy.


 The trouble is that China already has almost 20 plants in operation and has some 29 under construction. That means many more uranium mines will need to be bought and developed. The state-owned Chinese nuclear group that is in talks to invest in Britain’s new nuclear  programme. Chinese investment in UK energy and infrastructure is growing. Last year, China’s main sovereign wealth fund bought a stake in Thames Water, while Sinopec bought a 49 per cent stake in Canada-listed Talisman’s UK North Sea business for $1.5bn China is becoming a major force in nuclear power with 17 reactors in operation and 28 under construction. Its nuclear companies are also increasingly looking to expand abroad. China National Nuclear Corp. (CNNC) announced the technological breakthrough in uranium resource drilling which can help boost China's domestic uranium supplies and ensure the key energy source for developing nuclear power generation. China is hunting the world economy for uranium and that’s why so aggressive investments across the globe is being made by china. Today it looks okay but may be we are all heading for an massive threat from china’s aggressive uranium threat.

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