One of Asia’s most active sovereign wealth funds is investing up to $1 billion in the U.S. company that helped pioneer production of shale gas, Chesapeake Energy.
Temasek Holding, a $172-billion fund owned by the government of Singapore, will buy $500 million in preferred shares in Chesapeake, and has an option with Hopu Investment Management, a private equity firm in Beijing, to place another $500 million in Chesapeake preferred shares. Hopu is also acquiring $100 million of preferred shares.
Sovereign wealth funds, established by several countries to invest surpluses in foreign exchange earnings, have encountered political resistance in some countries when they seek to invest in sensitive industries like energy. State-owned companies in China and the Middle East are sometimes suspected of having political objectives in making their investments.
SWFs ranging from the Abu Dhabi Investment Authority with an estimated $400 billion to $700 billion to smaller funds like Australia’s Future Fund with $60 billion may have as much as $3.8 trillion in assets under management, according to some estimates.
Partly to counter misconceptions about their strategies and objectives, a score of the leading SWFs have set up the International Forum of Sovereign Wealth Funds. The group concluded its second annual meeting in Sydney, Australia over the weekend, pledging to promote international dialogue to dispel some of the myths about the funds.
The Temasek investment is part of the growing interest in Asian investors for stakes in energy and other resources around the world. The Singapore fund has also made substantial investments recently in copper, platinum and coal.
For Chesapeake, the investment is part of its strategy to raise up to $5 billion in an effort to unlock some of the value in its lease-holdings and to retire debt. The Oklahoma City-based firm is a leading developer in the potentially rich Marcellus shale in the Appalachian Basin, and will sell up to a 20% stake in the subsidiary managing that effort.
The shares offered to Temasek-Hopu are convertible preferred stock with a 5.75% coupon. The total $1.1bn investment would represent a potential equity holding of 7% in Chesapeake.
By. Darrell Delamaide