China’s sovereign wealth fund, China Investment Corporation (CIC), has announced two separate investments in two days totaling US$2.75bn. CIC announced recently it would be increasing new overseas investment in 2009 by more than ten times last year’s figure of US$4.8bn.
The fund has taken over US$1.9bn of debt from Indonesia’s largest coal producer, PT Bumi Resources, which has revived Bumi’s capital expenditure and its implementation of growth strategies. This investment is in the form of a debt-like instrument with a cash coupon of 12% annually and a total IRR of 19%.
Davis Polk & Wardwell’s Hong Kong-based partner, William Barron (pictured), represented CIC on this deal, and London-based partner John Paton provided CIC with tax advice. Jones Day advised Bumi, while Deutsche Bank AG and PT Samuel Sekuritas were the financial advisors to CIC and Bumi respectively.
Davis Polk, who advised Morgan Stanley on a US$5.5bn investment by CIC two years ago, is also working on five other deals involving natural resources in China, Indonesia, Australia and Latin America. “China’s appetite for natural resources has given rise to a number of M&A and fund-raising transactions for us and this trend is likely to continue,” Barron said.
CIC’s second major deal of its last two days is its purchase of over US$850m worth of shares from Hong Kong-based commodity trading giant Noble Group. The sale includes 135 million shares owned by CEO Richard Elman and 438 million new shares, which will give CIC a 14.9% stake in Noble. Listed on the SSE, Noble has in recent years kept an eye on China’s fast-growing market and will use part of the sale proceeds to expand investment in global agricultural commodities.
These two deals follow a co-operation pact established between CIC and the world’s largest commodity trader Glencore, as China deepens its access to global raw material markets. Despite being the youngest player of the world’s sovereign fund families, CIC has become one of the most aggressive foreign investors, and is exploring options in Japanese real estate as well.
CIC commodity investments 2009
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Company
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Value
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Teck Resources
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US$1.5bn
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Bumi Resources
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US$1.9bn
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Noble Group
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US$850m
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