Forget unprofitable investments in western financial groups. The scramble is on among Asian sovereign wealth funds for a big piece of the commodities action. As the FT reports on Tuesday, China Investment Corp has agreed to take a 15 per cent stake in Noble Group, the Hong Kong-based, Singapore-listed commodity supplier.
Noble, which boasts a sweeping business presence in China ranging from a soy-meal processing plant in Sichuan to dealings with most of the top steel mills, will sell $850m worth of new and existing shares to CIC at 8.1 per cent less than the last traded price.
The private placement consists of a mix of about 438m newly issued shares and about 135m shares from trusts associated with Noble’s founder and CEO, Richard Elman. The placement was done at a discount of just over 7 per cent, in line with recent Asian placements, according to the FT.
CIC has been shifting its investment focus in the past two years to commodities groups and hard assets such as real estate after (mainly unprofitable) dollar-investments in financial firms including Blackstone and Morgan Stanley. It recently entered into discussions with property investors in the US, such as Blackstone, regarding possible investments and took a stake in London’s Canary Wharf development in late August.
Interestingly CIC’s investment in Noble comes just a few months after Temasek, Singapore’s state-owned investment company, agreed in June to buy a 13.76 per cent stake in Singapore-based commodities supplier Olam International for S$437.5m ($303m).
Temasek, Bloomberg reported, shifted to commodity investments after the crisis drove down the value of its stakes in Bank of America and Barclays, causing it to report a record 66 per cent drop in profit in the 12 months to March 31.
The value of Temasek’s investments fell 30 per cent to S$130bn in the year to March 31, the company said last week. But things are looking up – along with commodities prices. As of July 31, the value of its holdings had recovered to S$172bn, 7 per cent below the March 2008 peak of S$185bn.
As for Noble, it has been a good year. The group’s second-quarter profit doubled as China boosted imports of raw material imports such as iron ore, coal and soybeans. As Bloomberg notes in a separate report, Noble’s share price has more than doubled, making it the fourth-best performer on the Straits Times Index. The company’s shares traded at S$2.30 before being suspended for a week from September 15 when it disclosed talks with an unspecified investor.
Chinese demand for commodities, meanwhile, “is back on track in a very big way,” CLSA Research said last week. And as Bloomberg notes, Noble is getting ready for it, having won control this year of Sydney-based Gloucester Coal and ordered five bulk carriers for about $320m to meet expected demand. In another good sign, the Baltic Dry Index, a measure of shipping costs for commodities, has tripled to 2,381 this year, boosted by shipments to China.
Related links:
In-depth report: Sovereign wealth funds – FT.com