China Investment Corporation (CIC), China's sovereign wealth fund, is sitting on quite a pot of money, but it is not sitting and waiting for the mired world economy to get well before it moves out in an investment binge, acquiring financial stakes in overseas resource mining companies with the idea of making that pot grow, and grow.
CIC Chairman Lou Jiwei says that due to limited staff, the company does not intend to hold controlling shares in its investment tenders although it has increased direct investment in the resources and energy industries. Even if it adds configuration on commodities and energy resources, it will focus on financial assets, such as equity and bonds, rather than physical assets.
Jesse Wang, CIC vice-president and chief risk officer, says CIC's mode is in financial investment. Any assets in any class, industry, or region may have investment potential if they are undervalued, or holdings may be reduced or sold if they are overvalued.
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On September 15, the Indonesian business newspaper Bisnis Indonesia reported that CIC may invest in bonds and warrants to be issued by Indonesia's largest coal producer, PT Bumi Resources. It said that the overall issuance is planned to reach as much as $1.9 billion.
On the same day, the Wall Street Journal (WSJ) reported that CIC intends to invest US$300 million in Hong Kong Lung Ming Investment Holdings, a mining firm focused on Mongolia. It said CIC plans to acquire Lung Ming convertible bonds before the latter's initial public offering in Hong Kong in the first half of next year. Instead of holding shares in Lung Ming, CIC will conduct financial investment, just as do Hope Fund and Singapore's Temasek. A CIC spokesman declined to comment on this.
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With China's economy rebounding and monetary policy remaining loose, demand for resources is rising, and many countries have begun to accumulate resource and raw material inventories. CIC has contacted with at least two coal firms, indicating the investment value of such resources is picking up.
In July, China invested CA$1.74 billion (about US$1.5 billion) to buy about 17% of the Class B shares of Canada's largest coal producer, Teck Resources, to aid the latter in reducing bank debt. In June, CIC said it would invest AU$200 million (about 1.1 billion yuan) in the Australian Goodman Group.
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As CIC has invested Indonesia's coal and other mineral resource firms, the international coal price has risen. By mid-August, the spot price of coking coal was $160 per ton, up 40% over the past three months and the highest over the past twelve months.
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CIC's overseas investment return last year was -2.1%. But with the steady improvement in overseas financial markets, and the slowing decline of the real economy, CIC has increased its investment in overseas resources and energy in addition to overseas financial institutions.
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Lou Jiwei says, "This year, CIC has grasped favorable opportunities of market stabilization, and speeded up its investment progress, in particular direct investment in resources, energy and other sectors, through diversifying investment and asset types and controlling overall portfolio risk."
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In September, the French media reported that CIC was showing an interest in holding a stake in French nuclear giant Areva, which once said it would provide 15% equity opportunities to strategic and industry partners to meet project needs, mainly through increase in capital. On September 14, the WSJ reported that CIC is negotiating on the acquisition of a minority stake in AES Co., a power plant developer and operator headquartered in Virginia.