Thursday, February 3, 2011

china bond -valuable information-03.02.2011

Help sought by holders of 1913 Chinese bonds-

Holders of old Chinese government bonds are making headway contacting federal officials for help redeeming the bonds.
But a rumor that President George W. Bush already has made a deal with the People's Republic of China regarding the bonds is just that."We have petitioned the president, but he hasn't received it yet," said Jonna Bianco, head of the American Bondholders Foundation of Lewisburg, Tenn. "It's still in the hands of congressional leaders."
Bianco helped create the foundation to help holders of Chinese bonds issued before 1949 redeem them.
But securities professionals still think the bonds, which are in default, aren't legitimate securities anymore because they're too old. They say they have value only as collectibles."I have a wall of shame in my office," said Harry Lewis of Lewis Investments in Denver, who dealt a lot in municipal and corporate bonds when he was with Boettcher & Co. and Dain Rauscher Inc. "On it are bonds from czarist Russia, the city of Marseilles, France's, electric power system and a Swedish corporation, Kreuger & Toll. They're all in default. They're collector's items."At issue are $70 billion in bonds sold by the Chinese government, particularly $4 billion worth of gold bonds issued in Europe in 1913. Holders of those bonds want the Chinese to make good on them, at least partly. The foundation even promises to give 40 percent of the money it recovers to American charities.Colorado has a connection to the bonds via C. William Arrington of Golden who last year was one of the leaders of a grassroots effort to convince the Chinese to honor the bonds. He was unavailable this week.
The U.S. Securities and Exchange Commission's Denver office also has investigated dealers across the country who have sold Chinese bonds fraudulently. It's illegal to sell the bonds with the promise that the Chinese government will repay them.
After investigating the bonds, the SEC also considers them memorabilia. It routinely cautions bond owners to question anyone who says old bonds can be redeemed."The types of antique bonds we've seen have had value only as collectibles," said John Nester, an SEC spokesman in Washington, D.C.The 1913 Chinese bonds were always risky. China's largest external issue, the bonds were part of the Reorganization Loan of 1913 and issued only a few years after a group of rebel warlords ended centuries of dynastic rule. The succeeding government was shaky and ultimately toppled by communists in the late 1940s.International law requires governments to honor previous governments' bonds, but there have been questions about whether the law applies to transitional regimes like the one that issued the 1913 bonds.
"China could argue that there wasn't just a change in government, but a change in the fundamental characteristics of the state and so it's not obligated to honor the bonds," said Tom Farer, head of the Graduate School of International Studies at the University of Denver and an expert on China.The Tennessee-based foundation wants the Bush administration to convince the Chinese to obey the law. The foundation is buoyed by the fact that the British government convinced the Chinese to pay a percentage of several Chinese bond issues to British bondholders in the 1980s.Last summer, the group also enlisted the support of the Foreign Bondholders Protective Council.The foundation and its law firm, Stites & Harbison in Nashville, have been trying to find American holders of defaulted Chinese bonds willing to submit a claim for payment through the FBPC. In late 2001, they even advertised for bondholders in national newspapers. The deadline for submissions was Dec. 31.The foundation is in the process of calculating the number of claims and their worth.
The E-Sylum: Volume 5, Number 26, June 23, 2002, Article 14

  A short article by Kimberly Weisul in the June 24, 2002
  issue of Business Week (p14), says "Don't Toss Those Old
  China Bonds"
  "From 1913 to 1949, China issued millions of dollars' worth
  of bonds. When the Communists came to power, they claimed
  the debt was the obligation of a capitalist government that no
  longer existed. They never paid.
  But with China's economy now booming, a group of 345
  families holding old Chinese debt are trying to get their money
  back.  They've persuaded 40 members of Congress to sign a
  letter to President Bush asking him to take up their cause with
  Beijing.  An additional 15 are considering signing, according
  to the group, the American Bondholders Foundation. (A
  Chinese Embassy spokesman declined to comment.)  The
  bonds have a face value of $731,000, says the bondholders'
  attorney, Riney Green. ABF claims that, with 50 to 85 years
  of interest, they're worth $89 billion.

  Fat chance, you say?   Political pressure has worked before.
  China paid British bondholders $23 million in 1987 after
  Britain refused to allow China to issue new debt in London.
  That was about 62% of face value -- so the Americans can't
  count on getting much.
  Getting anything, says Geert Rouwenhorst, an expert on
  Chinese debt at the Yale School of Management, "depends
  on the willingness of the politicians to make a big deal of this."
   Wayne Homren, Editor
The Numismatic Bibliomania Society is a non-profit organization 
promoting numismatic literature. See our web site at
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Chinese bonds valuable?

A group of American investors led by a Denver-area energy industry consultant is demanding that the Chinese government make good on bonds it believes to be worth billions of dollars and that were issued by a previous government nearly a century ago.
C. William Arrington, head of Golden-based C. William Arrington & Associates LLC, and a Texas investor are trying to get the U.S. government to pressure the People's Republic of China to repay the bonds.
They've asked the Foreign Bondholders Protective Council to take up their case, and the council has said it will study it, according to a recent USA Today story. They've even created a foundation staked by the bonds in the hope that President George W. Bush will use a 1933 law that allows him to help U.S. citizens seeking repayment from foreign governments when it's in the public interest.
The bondholders' battle has been uphill so far, even though there's precedent for such bonds' repayment. The Arrington group's bonds are formally called 1913 Chinese Reorganization gold bonds.
International law generally holds that bonds issued by one government should be honored by a succeeding government.
In the late 1980s, the British government convinced the current Chinese government to pay holders of a variety of Chinese bonds in Britain 20 million pounds ($28.3 million at today's exchange rate). Besides the 1913 issues, those bonds also included ones for a huge Chinese railroad and public works projects in what's now Hebei Province. Only 10 percent of the outstanding bonds were redeemed.
For the most part, though, the U.S. government considers the bonds worthless, except for their historic value, because they're so old. They went into default more than 50 years ago, having gone unpaid past their 30-year maturity date.
The Securities and Exchange Commission's central regional office in Denver has even had dealings with that bond issue. A few years ago, the office investigated and sued a used car salesman in Kissimmee, Fla., who it found to be fraudulently selling the Chinese bonds as securities through his British Virgin Islands-based investment company.
In 1997 and '98, the salesman, Peter J. Zaccagnino III, sold more than 70 kinds of historic bonds, including 1913 Chinese government issues, for $14,000 to $330,000 each, according to the SEC. He made nearly $5 million from those sales.
In late 1998, a federal court in Orlando, Fla., agreed with the SEC that Zaccagnino's bond dealings were fraudulent and ordered him, and his associates, to stop selling securities. The court also froze their assets.
"We investigated those bonds," said Michael MacPhail, assistant director of the SEC's Denver office, referring to the Chinese Reorganization bonds. "We generally alleged that they were without any investment value. They're just collectible memorabilia."
The U.S. Foreign Claims Settlement Commission decided against those attempting to redeem 1913 Chinese bonds a few decades earlier. The commission held in the 1970s that China's current government is not responsible for repaying them.
It's not known if Zaccagnino sold Arrington and his group their Chinese bonds.
Efforts to contact Arrington for this story were unsuccessful. Voicemail messages left at a telephone number listed as his company's by an online phone directory were not returned.
The Coloradan and Texan William Morgan, the group's principal leaders, claim the federal government won't help them get their money because it doesn't want to rattle its already shaky relations with China, according to USA Today. That relationship was strained most recently when the Chinese shot down an American spy plane earlier this year, and didn't return the crew right away.
Morgan has been buying up the bonds as investments since the 1990s and now has about 6,000 he thinks are worth several billion dollars. He assigned 1,200 of the bonds, supposedly worth $4.3 billion, to Arrington.
There are reportedly 25,000 such bonds still in existence. A bond valuation expert quoted by USA Today put their value at $3.6 million each, or $90 billion.
But bond sellers such as Antique estimate the bonds' worth at a lot less. A bond originally valued at 20 British pounds, the dominant international currency when the bonds were issued, now sells for $195, according to the online dealer. The 100-pound one goes for $1,170. also warns that it sells the bonds as collectibles only and that they have no value as securities.
The 1913 Chinese Reorganization bonds were always risky. They were issued only two years after centuries of rule by Chinese dynasties ended when a group of rebel warlords seized power. The new government, in turn, succumbed to the Chinese communists led by Mao Zedong in the late 1940s.
The bonds belonged to China's largest outside debt issue to that time. They were underwritten by some of the world's biggest banks, as well, and in their currencies -- the British Hong Kong and Shanghai Banking Corp., Banque de 'Indochine of France, Deutsch-Asiatische Bank of Germany, Russo-Asiatische Bank of Russia and Japan's Yokohama Specie Bank. But the loan the bonds came from, along with most of China's outside loans from the early 1900s, were in default by World War II, according to Yale University's International Center for Finance, which collects historic securities.
"Buying bonds in a situation like that is pretty risky," said Greg Moore, assistant director of the Center for China-U.S. Cooperation at the University of Denver. "When you have a transition of regimes, there's always a question of honoring bonds, even though international law says you're supposed to."
Sanjai Bhagat, a finance professor at the University of Colorado at Boulder, agrees that generally current governments should honor previous governments' bond obligations by law. But bonds can also have provisions that nullify or otherwise affect that promise, including nonpayment provisions and restrictive covenants.
"Mostly, bonds are paid off at some time at some rate, with the assumption that a subsequent government will take over the obligation of a previous one. ... But there can be other political elements involved," summed up Bhagat.

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