China Investment Corporation (CIC), the nation's sovereign wealth fund, has agreed to buy 1.9 billion U.S. dollars of debt from Indonesian coal miner PT Bumi Resources to increase its access to commodities, sources with CIC said Thursday.
The deal came days after CIC reaching an agreement to take stake in the Hong Kong-based commodities trader Noble Group for approximately 850 million U.S. dollars.
In July, CIC invested 1.5 billion U.S. dollars in Tech Resources Limited of Canada.
"These deals show that CIC is attaching more attention to commodities and intends to diversify its assets arrangement," said Zhuang Jian, a senior economist with the Asian Development Bank.
Bumi Resources, Indonesia's largest thermal coal producer, said in a statement that CIC has purchased the firm's debt-like instruments for 1.9 billion dollars, with 600 million U.S. dollars repayable in four years, 600 million U.S. dollars in five years and 700 million U.S. dollars in six years.
Bumi said that CIC's cash injection would enable it to grow quickly and give it a stable capital structure, and the partnership with CIC would create a platform for both sides to jointly pursue investment opportunities.
CIC would receive a return of 12 percent each year and a total internal rate of return of 19 percent, said Burmi.
"Under the forecast of excessive fluidity and devaluation of the U.S. dollars under global economic stimulus policies, CIC's investment in commodities will be a better option to mitigate risks in China's huge foreign exchange reserves," said Zhuang.
CIC's investment in natural resources also matches China's long-term strategy for resources security, according to Liu Yuhui, researcher with the Institute of Finance and Banking of the Chinese Academy of Social Sciences.
"As the world's largest manufacturer, China is becoming more and more sensitive to price fluctuations of commodities in the global market," he said.
Indonesia is the world's largest exporter of thermal coals, while China is the largest coal consumer. China imported 11.5 million tonnes of coal from Indonesia in 2008, accounting for one quarter of its total coal imports.
"CIC slowed its investment pace since July 2008 in the face of the global economic downturn. But as the world economy improves, CIC would become more active investing overseas," said a senior official with CIC when the sovereign fund released its 2008 annual report in August.
CIC has made investment in fields beyond resources. In September, it helped bail out the company behind London's Canary Wharf property development and bought into an Australian real-estate trust for 200 million Australian dollars.
"Opportunities emerge in crisis. Investment in assets with better quality and better prospects may bring profits in the long run," said Liu.
"Investment decisions in 2009 demonstrate CIC is more mature and makes more efforts in assets diversification," said Zhuang Jian.
Since it was launched in September 2007 with a registered capital of 200 billion U.S. dollars from China's huge foreign exchange reserves, CIC has been criticised for suffering book value losses after it purchased stakes in Blackstone Group and Morgan Stanley in 2007.
(Xinhua News Agency September 25, 2009)
