International Business News

The Bank of Korea raised its key interest rate Friday for the first time since the beginning of the financial crisis and reinforced expectations of a further tightening of monetary policy by predicting strong growth and rising inflation .

The Bank of Korea increased by 25 basis points rate previously set at record low of 2.0%, falling into step with its regional counterparts in Australia, India, Taiwan and Malaysia.

Investors were expecting such an initiative for several weeks in light of the growing confidence shown by the authorities regarding the ability of the fourth largest economy in Asia to consolidate its recovery, despite lingering uncertainties in Europe and the United States.

Most analysts polled by Reuters had forecast, however, on a rate hike in August or September.

The won has increased its earnings to grow by over 1.0% on the session against the dollar.The stock market is, they, remained virtually unchanged.

"Governments in Asia seem relatively confident about the economic outlook despite concerns about the potential impact of euro weakness and the short-term downturn in growth by the rapid pace set earlier this year "said Brian Jackson, a specialist emerging markets at Royal Bank of Canada.

"We expect the Bank of Korea will further increase interest rates by 50 basis points by the end of the year, the risks are increasingly tilted to the upside," he adds.

For a chart on the interest rate and inflation trends: here

PROGRESSIVE CURE

The Governor of the Bank of Korea Kim Choong-soo told reporters that the economy had probably increased more than 7% over the same period last year in the second quarter and throughout the first half.

He also said that inflation should reach 3.0% next year, in the middle of the range the central bank's target of between 2.0 and 4.0%, which analysts said could conduct Bank of Korea to bring its rate of 3.0% by the end of this year.

He also reported a sharp rise in housing loans in June after a period of sluggish growth.

"There is no doubt that the basic rate of 2.0% was very low in view of various factors such as economic growth and inflation outlook," the governor said.

Kim Choong-soo was upbeat on global growth while highlighting the budgetary problems in Europe that it deems the main risk, adding that further turmoil in financial markets were possible.

The tightening of monetary policy the central bank should be gradual as the institution has ensured that its policy would remain accommodative.

"As the policy rate is still very low and the pace of tightening is very gradual, it is still support for the economy and the market impact will not be negative," said Lee Sung Kwon, an economist at Shinhan Investment Corporation.

This is the first increase in interest rates in South Korea since August 2008 and their first change since the beginning of last year.

EADS submitted a bid under a contract for refueling tankers for the U.S. Air Force, according to a source familiar with the matter.

EADS North America and Boeing are competing in this market of 179 aircraft, which could reach 50 billion dollars (39.5 billion euros).

Boeing is expected to submit an offer by Friday, the deadline for submission of tenders.

EADS had no comment.

Agricultural Bank of China (AGBANK), China's third largest bank, has priced its initial public offering dual Hong Kong and Shanghai, which should enable it to raise more than $ 22 billion (17.5 billion euros ) hypothesized high, bigger bet on the market ever.

The first trading day will be held July 15 in Shanghai and Hong Kong the next day. The official announcement of the award is scheduled for Wednesday.

AGBANK, founded by Mao Zedong in 1951, operates a large network of branches in the Chinese countryside and in larger cities.

Three years ago, AGBANK was technically bankrupt.His recovery, after a rescue of 30 billion dollars, has been boosted by the strong growth experienced in the country and the state control over the banking sector.

In Hong Kong, AGBANK sold 25.4 billion shares, representing 8% of its enlarged capital, at a price of 3.20 Hong Kong dollars part, totaling 10.4 billion U.S. dollars, it was reported Tuesday source close to the matter.

The bank had tightened Monday its price range, between 3.18 and 3.38 dollars per share in Hong Kong, against an initial range of 2.88 to 3.48 dollars.

In Shanghai, the price was fixed at the top of its indicative range which started at 2.52 yuan.AGBANK will sell 22.24 billion of yuan-denominated A shares at a price of 2.68 yuan coin, or 59.6 billion yuan (8.8 billion dollars).

In total, AGBANK rise $ 19.3 billion through its dual listing and even 22.2 billion dollars if the over-allotment option is exercised, an event likely in view of the application.

Previously, the largest ever IPO was that of Industrial & Commercial Bank of China with 21.9 billion in 2006.

OFFER 20 times oversubscribed

China International Capital Corp (CICC), Deutsche Bank, Goldman Sachs, JPMorgan, Macquarie and Morgan Stanley are the banks organizing the operation in Hong Kong, with the brokerage firm of AGBANK.

For placing on the market in Shanghai, banks are CICC, CITIC Securities, Guotai Junan Securities and Galaxy.

AGBANK is quoting on the stock market to allow the government to achieve its objective, namely to have the four largest banks in the country publicly traded.

Having for many of them had periods of insolvency, it are now among the largest banks – and companies – in terms of market capitalization.

A source familiar with the matter, it indicates that the offer of AGBANK in Shanghai was 20 times oversubscribed by institutional investors.

In Hong Kong, the institutional demand came from Asia to 4%, 30% U.S. 25% Europe thee, according to sources involved.

Individuals have however shown little enthusiasm in Shanghai, like Hong Kong.

The IPO allotment option included, values AGBANK about 150 billion dollars (nearly 120 billion euros), making it the fourth largest bank in terms of global market capitalization behind ICBC, China Construction Bank and HSBC .

Chaired by Xiang Junbo, headline writer and war hero, AGBANK operates 24,000 branches, employs 441,000 people and boasts 320 million customers.

The price for AGBANK bodes well for the four Chinese banks wishing to raise capital as is the case for Bank of China and ICBC.

The Shanghai stock market has lost nearly 25% since mid-April and fell sharply last week, partly because investors sold shares to participate in the offer AGBANK.

The Nikkei closed up 0.69% Monday, supported by export values.

The Nikkei gained 63.07 points to 9,266.78 and the broader TOPIX took 5.91 points (0.71%) to 836.89.

The export values rebound after a week particularly difficult, during which they were penalized by the rising yen.

Nissan shares closed up 2.14% at 620 yen on good controls to the release of a new utility model sold about a month ago on the Japanese market.

Hitachi Ltd., Mitsubishi Heavy Industries Ltd. and Mitsubishi Electric Corp. were awarded respectively 1.87%, 0.66% and 1.87% at the announcement of a partnership on their activities in hydropower, winner.

HSBC Holdings announced the acquisition of the retail banking and commercial banking at Royal Bank of Scotland in India, the British bank nationalized virtually continuing its withdrawal from foreign markets.

HSBC announced it would pay a premium of up to $ 95 million (75.8 million) compared to the net asset activity during the closing of the transaction, expected to first half of next year.

The price could be reduced in cases of increased bad debt during the next two years.

Sources had previously said qu'HSBC redeem these activities, which have 1.1 million customers, more than 1,800 employees and 31 divisions in India.The gross value of these assets were worth $ 1.8 billion at end March.

Currently, HSBC has about two million customers and 50 divisions in 29 Indian cities.

RBS, owned 83% by the British government, seeks to refocus on its core business and sold off in recent weeks some of his small business.

The group puts an end to a decade of international development, raising over 2.5 billion dollars by withdrawing more than twenty activities over the past 14 months.