CIC Bets Big on Resources

By RICK CAREW and TOM WRIGHT HONG KONG -- China's sovereign-wealth fund is fast becoming a major backer of natural-resources companies world-wide, as the $300 billion fund seeks to buy into a global rebound. China Investment Corp. on Wednesday ramped up its position in the commodities area for the second time in two days with a $1.9 billion debt-like investment in PT Bumi Resources of Indonesia, the country's largest producer of thermal coal, or coal used to generate electricity. The day before, CIC agreed to buy a 15% stake in Hong Kong-based commodities trader Noble Group Ltd. for $850 million. Together with a $1.5 billion investment in Canadian miner Teck Resources Ltd. in early July, CIC has agreed in the past three months to invest at least $4.25 billion in resource deals, a sign of how energy, metals and agricultural commodities are proving increasingly central to the Chinese state fund's investment strategy. CIC's willingness to dole out cash contrasts with other sovereign-wealth funds, for example those in the Middle East and Singapore, which remain cautious after having seen their portfolios hurt in the financial crisis. It also brings life to the mergers-and-acquisitions market, which until lately had been dormant as credit dried up. CIC's resource plays dovetail with China's long-term strategic interest in securing access to natural resources. Chinese officials have pushed state-owned firms to buy overseas mining and oil assets this year as commodity prices dropped. CIC has avoided taking majority stakes in companies, sticking to minority holdings. CIC's willingness to dole out cash contrasts with other sovereign-wealth funds, for example those in the Middle East and Singapore, which remain cautious after having seen their portfolios hurt in the financial crisis. Above, the New Poly Plaza in Beijing, where the headquarters of CIC is located. In the energy patch, CIC and other China-based investors are currently very sought-after bidders for energy properties as other suitors have stayed on the sidelines. After a pummeling last year, commodity prices along with stock prices of commodity producers have bounced back in recent months. Still, they are far from their highs last year. Many energy companies and energy private-equity firms remain eager to unload some assets for cash. The CIC moves also fit broadly into the fund's efforts to capture the potential upside from a global economic rebound. "As the market turns around, there are lots of opportunities for CIC and other sovereign-wealth funds," CIC's supervisory board chairman, Jin Liqun, told The Wall Street Journal in an interview last month. "'Cash is king' will turn into 'capital is king,'" though he noted that "as a long-term investor, CIC will continue to keep a balanced portfolio." CIC has made other bets beyond resources that seem leveraged to a global rebound, particularly in the real-estate sector. In recent days, it has taken small stakes in Chinese real-estate developers. It also has helped bail out the company behind London's Canary Wharf property development, and bought into an Australian real-estate trust. China analysts at J.P. Morgan Chase & Co. estimate CIC could put as much as $50 billion into deals this year. The spate of activity signals renewed confidence at CIC, which endured criticism over poor timing on its high-profile purchase of stakes in Blackstone Group LP and Morgan Stanley in 2007. Chairman Lou Jiwei said recently China's government might add to the $200 billion it gave CIC to manage if it posts good returns. Last year, the sovereign-wealth fund lost just 2.1% on its global portfolio by staying mostly in cash, outperforming many big sovereign-wealth and pension funds. China's positive experience with CIC is encouraging it to propose a sovereign-wealth fund to solve global imbalances. Chinese central bank vice governor Hu Xiaolian said in a paper released Tuesday that the Group of 20 should consider setting up a "supra-sovereign-wealth investment fund" that would invest some of the surplus in poor countries "so that these countries can serve as new engines in global recovery and growth." Indonesia is the world's largest exporter of thermal coal, which is generally used for generating power, and Bumi Resources is one of the biggest producers with two highly-productive mines on Borneo island. The investment in Indonesia's Bumi Resources will offer CIC a 12% annual cash coupon with an internal rate of return of 19%, Bumi said in a statement. The debt-like instrument will have a six-year term, Bumi said. Earlier this year, a spokesman for Bakrie & Brothers, an Indonesian company that holds a large stake in Bumi Resources, said the company was considering a strategic tie-up with Chinese investors who were looking to secure long-term supplies of coal for generating electricity. A spokesman for Bakrie & Brothers wasn't immediately reached for comment Wednesday. With the Noble deal, CIC will hold nearly 15% of the firm, a commodities company with assets ranging from Brazilian sugar mills to Australian iron ore to oilseed-processing facilities in China and India. CIC will own about 17% of Teck Resources, which produces copper, metallurgical coal and zinc, among other things. —Ann Davis and Carolyn Cui contributed to this article. Write to Rick Carew at rick.carew@wsj.com and Tom Wright at tom.wright@wsj.com