Sept. 24 (Bloomberg) — China’s $297.5 billion sovereign wealth fund is stepping up investments in commodities companies, agreeing to spend $2.75 billion in the last two days.
China Investment Corp. bought $1.9 billion of debt from PT Bumi Resources, Indonesia’s biggest coal producer, Jakarta-based Bumi said in a statement late yesterday. A day earlier, CIC paid $850 million for a 15 percent stake in Noble Group Ltd., a Hong Kong-based commodity supplier.
After losing money on Blackstone Group LP and Morgan Stanley, CIC is increasing investments in resources firms to gain access to the raw materials it needs to fuel growth. China — the world’s biggest buyer of commodities including soybeans, cotton and iron ore — will expand 8.2 percent this year, compared with a March forecast of 7 percent, the Asian Development Bank said this week.
“China is relatively resources short, and it’s not a secret that CIC has this long-term strategy to buy resources overseas,” said Fraser Howie, author of the book “Privatizing China,” in a phone interview from Singapore. “It seems it is finding its feet after the financial investments it made earlier, which brought it criticism at home.”
Bumi will use part of the funds to pare about $1.6 billion of debt and boost investments, according to Dileep Srivastava, the company’s head of investor relations. The transaction with the Chinese fund may also help Bumi increase investments in China.
“At a time when there are a lot of investments on the anvil, it frees up your cash flow,” Srivastava said by phone from Hong Kong yesterday. “You will be getting comfortable tenors at a time when you will be investing heavily in the next couple of years.”
A CIC spokeswoman in Beijing confirmed the Bumi deal today and refused to comment further.
The Reuters/Jeffries CRB Index, a gauge of 19 raw materials and commodities, remains 46 percent below a high reached in July last year.
“China has prioritized the strategy of overseas commodity acquisitions as the nation’s resources shortage becomes the constraint for its economic growth,” said Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai. “Now is a good time to buy resources after commodity prices dropped.”
Bumi’s shares have more than tripled this year making it the best-performing stock in the 19-stock MSCI Indonesia Index. They rose 0.8 percent to 3,350 rupiah on Sept. 17. Indonesian markets have been closed to celebrate the Muslim festival of Eid-ul-Fitr.
Deutsche Bank AG advised CIC, while PT Samuel Sekuritas helped Bumi, according to the statement. Bumi will pay a coupon of 12 percent on the debt to CIC, the company said in an e- mailed statement. It will start paying the debt in the fourth year and complete the repayment in the sixth year, according to the statement.
Noble will sell $850 million worth of new and existing shares to CIC at 8.1 percent less than the last traded price, it said in a statement on Sept. 22. The sale includes 135 million shares owned by Chief Executive Officer Richard Elman and 438 million new shares, the Hong Kong-based company said.
Noble, founded in 1987 by Elman, owns mines, farms, ports and processing facilities, according to its Web site. It trades commodities from aluminum to zinc and operates in more than 40 countries. It will use the S$926 million ($654 million) proceeds to expand investment in global agricultural commodities.
CIC had 87.4 percent of its assets of $297.5 billion in cash or equivalents last year, it said last month. It will actively grasp investment opportunities this year after slowing spending in 2008 because of the global financial crisis, the company said in a statement on Aug. 7.
The sovereign fund bought a 17 percent stake in Teck Resources Ltd., Canada’s largest diversified mining company, in July for C$1.74 billion ($1.5 billion) as the Canadian company sought to reduce debt.
“They stepped up investment recently, but you never know when they are going to make the next investment,” Howie said. “They were pretty quiet for a while and it could be next week or next month when they make another investment. It’s a big deal for the company, but for the world, there are a lot of commodities.”
Singapore’s sovereign wealth fund also is shifting to commodity investments after the global financial crisis drove down the value of its stakes in Bank of America Corp. and Barclays Plc, causing it to report a profit that dropped a record 66 percent in the 12 months to March 31. Temasek Holdings Pte agreed to buy 13.76 percent of Singapore-based commodities supplier Olam International Ltd. in June.
China established its sovereign wealth fund in 2007 to help manage the nation’s $2 trillion of foreign-exchange reserves.