Ireland well placed for Chinese trade

Thu, Feb 7, 2013, 00:00

Cantillon:Financial problems or not, the world's second largest economy - feisty to become number one - sees our small island as a valuable facilitator of the surge.

Last year China invested some $70 billion (€52 billion) across the globe as part of its efforts to modernise and to expand its economic philosophy in the western, capitalist mould.

What of Ireland? The Chinese economic monolith was given a human face here with last year's visit of the country's incoming leader, Xi Jinping.

Trade deals and exports are one thing but it is Irish industrial expertise that interests the nation of 1.3 billion people.

Our geographical positioning as a producer of wind energy is just one area of interest - suitability for Chinese investment is already being gauged - with dairy, agriculture, medical and pharmaceutical expertise and high-tech sectors all in the mix.

"Stability and growth: these words are music to Chinese ears," Jacque de Vos of Investec Asia (above, with Minister of State Brian Hayes and Jonathan Fourie of Investec Ireland) told an investment conference in Dublin yesterday.

"China needs to go out and integrate her economy with the world economy. Out of all of this money [ $70 billion international investment], almost all of it came from the state sector."

Mr de Vos believes the future of the Irish-Chinese relationship can be forged from our international reputation for expertise, particularly in research and development and general know-how. Simply put: human capital and innovation. "Ireland has been very well positioned in China as a source of safe reliable [agricultural and dairy] products," he said.

Given the relatively recent emergence of dairy consumption in a traditionally non-dairy-consuming country - and following a baby-milk scandal five years ago - our skill sets are not overstated.

And for technology powerhouses like Huawei, it is encouraging to watch Google and Facebook set up in Dublin, ably assisted by an attractive and transparent taxation system.

Such overwhelming investment strategies may seem like Chinese to us; but it is all about Ireland to China.

S&P 'burning down house' emails shown

Standard & Poor's may say that emails between its employees do not prove wrongdoing in the US federal lawsuit against the country's largest rating agency but they sure don't look good for the debt appraiser.

Investigators suing the agency for giving a clean bill of credit health to securities made up of toxic US mortgages got hold of more than 20 million emails sent between employees between 2004 and 2007. These will be used to try to extract $5 billion in penalties to cover losses - five times what S&P made in 2011 - for not doing more to stop the 2008 financial crisis.

One analyst at the agency cited the Talking Heads song Burning Down The House in a March 2007 email, saying: "Watch out/Housing market went softer/Cooling down/Strong market is now much weaker/Subprime is boiling over/Bringing down the house."

Another email, from 2007, cites an analyst describing his new job at S&P amid growing concern over the mortgage-backed securities (MBS) market where the dodgy mortgage debt was sold.

"Job's going great," he wrote.

"Aside from the fact that the MBS world is crashing, investors and the media hate us and we're all running around to save face . . . no complaints."

Internal memos and emails show that some executives at the agency wanted to change how it rated securities but only after checking with "an appropriate number of issuers [ of debt] and investment bankers" on what the implications of this might be, suggesting that it didn't want to lose business.

One executive in August 2004 expressed concern that the agency would lose business to rival credit appraisers such as Moody's and Fitch unless it gave favourable ratings.

An investment banker told a Standard & Poor's analyst in another exchange from July 2007:

"We pay you to rate our deals, and the better the rating, the more money we make?!?! What's up with that? How are you supposed to be impartial?"


Question for Elan is what to do now

As usual, it was down to the markets to cut through the bluster and spin. As Elan and Biogen each described how the proposal to transfer ownership of the jointly owned blockbuster multiple sclerosis drug Tysabri to the US company, the Nasdaq ticker told the tale.

Shares in Biogen rose by over 6 per cent to bring the company's valuation to a new high, before profit-taking trimmed the gains closer to 2 per cent.

Elan went the other way.

After an initial jump, the shares quickly lost ground, dipping by close to 9 per cent at one point.

The trouble for Elan doesn't lie in the terms of the deal which, in themselves, look quite strong. It has secured a substantial $3.25 billion cash payment upfront and significant future royalty income on a drug that recorded sales of $1.63 billion last year - sales that are expected to jump 15 per cent in 2013 and as high as $3 billion by 2016.

No, the issue for Elan is what does it do now? For close to 20 years, Elan has been defined by its purchase of Athena Neuroscience.

The people and the science that came with that deal have been at the heart of the company ever since. At times, it came close to collapse but it also produces Tysabri, a therapy that is risky for as much as half the two million-strong population of multiple sclerosis patients, but seemingly safe for the balance - and far more effective in managing the disease than anything else on the market.

Having consciously created a structure over recent years where Elan was dependent solely on Tysabri - selling off the bulk of its manufacturing and research capacity - it has now decided to diversify because "the risk of one asset and a single collaborator was not ideal".

For shareholders, and the market in general, the lack of any clear route to future development is a concern. The company was remarkably coy in conference calls yesterday on when, by how much and in what format shareholders might expect to benefit from the cash windfall to hand.

And, despite the success of chief executive Kelly Martin in fixing the finances of the company over his decade at the helm, Elan has little in the way of credit in the bank when it comes to seeking their trust on strategic direction.


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