State Owned Enterprise

Kenya Dreams of a Sovereign Wealth Fund

Najib Balala

Kenyan Mining Minister Najib Balala

Africa is rising. This is the narrative being spun by journalists, dealmakers, policymakers and academics. Kenya, an East African nation, has traditionally focused on agriculture, tourism, manufacturing and service industries – a contrast to other countries in the region that are developing mineral extractive industries. Mining composes a miniscule slice of gross domestic product for Kenya. The horizon looks bright for Kenyan mining, as gold and other mineral deposits like rutile have been discovered. In addition, the government of Kenya is repealing law that requires 35% domestic ownership of mining firms, down to 10%.

Nearly 40 kilometers south of Mombasa, the Kwale Mineral Sands Project, a mega mining venture attracting international attention, will have a profound impression on Kenya’s mining exports. Owned and operated by Base Resources, it may be one of the top producers of rutile and ilmenite on the planet. The majority of ilmenite is mined for titanium dioxide production. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Central Huijin Invests 20 Billion Yuan in China Export and Credit Insurance Corp

Export credit financing is one instrument used by governments to support domestic exporters. In China, export financing and insurance are directed through three organizations, China’s Eximbank, the China Development Bank (CDB), and the China Export & Credit Insurance Corporation (Sinosure).

China has poured hundreds of billions in the last few years to achieve an aggressive model of export credit financing, far superior in terms of capital than the United States.

Central Huijin Investment Co invested 20 billion yuan in China Export & Credit Insurance Corporation (Sinosure). This move was to assist Chinese companies in furthering their exports and investing overseas.

Sinosure is a state-owned enterprise that provides credit insurance services for exporters and other organizations. Sinosure began its operations on December 18, 2001. The organization provides export credit insurance against risks of non-payment. Sinosure offers coverage against commercial risks and political risks.

Libya’s NOC Projected to Generate $54.9 Billion in 2012

Libya’s National Oil Corporation (NOC) from its website stated that it expects to generate $54.9 billion in revenue from oil and natural gas this year. Revenue would be derived from exports and taxes on oil companies operating in Libya.

The NOC was founded on November 12, 1970 when it replaced the Libyan Petroleum Corporation.

Libya is looking to attract international investment to further develop their oil & gas industry.

CNOOC Limited Enters Into Definitive Agreement to Acquire Nexen Inc.

According to the press release, “CNOOC Limited (SEHK: 00883, NYSE: CEO) and Nexen Inc. (TSX: NXY, NYSE: NXY) announced today that they have entered into a definitive agreement under which CNOOC Limited will acquire all of the outstanding common shares of Nexen for US$27.50 per share in cash.

The purchase price represents a premium of 61% to the closing price of Nexen’s common shares on the NYSE on July 20, 2012, and a premium of 66% to Nexen’s 20 trading-day volume-weighted average share price. Total cash consideration of approximately US$15.1 billion will be paid for Nexen’s common and preferred shares, and Nexen’s current debt of approximately US$4.3 billion will remain outstanding. The transaction, which will be completed by way of a plan of arrangement, is expected to close in the fourth quarter of 2012.

The acquisition of Nexen expands CNOOC Limited’s overseas businesses and resource base in order to deliver long-term, sustainable growth. Nexen will complement CNOOC Limited’s large offshore production footprint in China and extends CNOOC Limited’s global presence with a high-quality asset base in many of the world’s most significant producing regions – including Western Canada, the U.K. North Sea, the Gulf of Mexico and offshore Nigeria – focused on conventional oil and gas, oil sands and shale gas. In addition, Nexen management’s current mandate will be expanded to include all of CNOOC Limited’s North American and Caribbean assets.

Nexen had average production of 207 mboe/d (after royalties) in Q2 2012. In accordance with SEC rules, Nexen had 900 mmboe of proved reserves and 1,122 mmboe of probable reserves as of December 31, 2011. In addition, as of December 31, 2011, Nexen had best estimate contingent resources of 5.6 billion boe in accordance with Canadian National Instrument 51-101, predominantly in the Canadian oil sands.

The transaction will be funded by CNOOC Limited’s existing cash resources and external financing.

Mr. Wang Yilin, Chairman of CNOOC Limited said, “The acquisition reflects our strong belief in Nexen’s rich and diverse portfolio of assets and world-class management and employees. This is an exciting opportunity for us to build on our existing joint venture relationship with Nexen in Canada, and to acquire a leading international platform in the process. We strongly believe that this acquisition will create long-term value for CNOOC Limited’s shareholders.”

Commenting on the acquisition, Mr. Barry Jackson, Chairman of the Board of Nexen, said, ‘This transaction delivers significant and immediate value to Nexen shareholders. The Nexen Board is unanimous in its view that the transaction is in the best interest of Nexen and recommends shareholders vote in favor of the transaction.’”

Read more: Nexen Press Release

Domestic Private Equity Exposure to Accelerate for China’s NSSF

China’s National Social Security Fund (NSSF) is planning to accelerate allocation to domestic private equity funds. By the end of 2012, the NSSF plans to increase exposure to domestic private equity funds from 19.5 billion yuan to 30 billion yuan. The NSSF could have allocation of around 50 billion yuan by 2015. Allocations will most likely be received by the more established Chinese private equity firms.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Slovenia to Consolidate State-Owned Assets into Proposed SWF

Slovenia is planning to consolidate state-owned assets into a sovereign wealth fund. By merging the different agencies, Slovenia hopes to enhance revenue and improve organizational efficiency. The five agencies manage assets of more than €10 billion. Over time, the Government of Slovenia will decide which assets to dispose of. The proposed sovereign fund’s profits will be used to finance pensions and the national budget.

Once a part of Yugoslavia, Slovenia has emerged as an independent nation. In 2007, the country became a Eurozone member and in 2010 joined the OECD. Austerity measures across Europe have negatively affected the Slovenian economy.

The country is highly dependent on exporting to other EU countries.

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A Future Kenyan Strategic Development Sovereign Wealth Fund

Policymakers in Kenya are in discussions in creating a sovereign wealth fund (SWF). Currently, state-owned enterprise (SOE) profits are paid into the treasury or to the Kenyan Ministry of Finance as a dividend to the government. Kenya plans to use profits from state-owned enterprises to fund a sovereign wealth fund. This strategic development sovereign wealth fund (SDSWF) will reinvest SOE profits to advance Kenya’s commercial interests in foreign countries. The proposed law and regulations still have to be approved by the Kenyan Parliament.

Socialist countries are embracing economic reforms to create regional business champions.

In the past three decades, some Asian and a handful of African countries have undertaken massive privatization programs. By privatizing public companies, countries can draw in foreign investment, reduce national debt, and expand their capital markets. In addition, there are plans to sever SOE ties from the treasury and bring them under a national holding entity, in this case the National Assets Holding Authority.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

ICBC, CIC, and Central Huijin Get Fed Approval to Acquire US Retail Bank Shares

The Industrial and Commercial Bank of China Limited (ICBC), China Investment Corporation, and Central Huijin Investment Ltd. received approval from the Federal Reserve on Wednesday to acquire shares of a bank unit. ICBC is on a campaign to acquire overseas assets to reduce exposure in the domestic market. In addition, Chinese banks are eager to have a footprint in the United States.

The deal involves allowing ICBC to acquire up to 80% of the voting shares of the US unit of Hong Kong-based Bank of East Asia. This bank’s unit has thirteen branches in New York and California.

ICBC is the biggest bank in China and has approximately $2.5 trillion in assets.

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Possible Progress on China’s Involvement with Italian and EU Investments

Italy along with other European nations are trying to convince countries with major current account surpluses to further investment in their government bonds and/or the Eurozone bailout funds. Italian Prime Minister Mario Monti has passed a series of spending cuts, tax increases, and pension reforms to cut Italy’s mega public debt pyramid. It is a gentle balancing act to please foreign institutional investors and yet calm growing discontent at austerity measures that Italians have to deal with. Real GDP growth is essential if Italy wants to have a strong robust economy.

Italy has been courting governments and sovereign wealth funds. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

IPIC and Mubadala Oil and Gas Create Emirates LNG

Natural gas is gaining tremendous traction among many nations as a viable alternative to oil, especially with the discovery of new extraction and transportation technologies. Sovereign wealth funds and state-owned companies, particularly in Asia and the Middle East are hedging their bets on natural gas and other forms of fuel besides crude oil. Some notable investments include Temasek’s investment in Clean Energy Fuels Corporation and the China Investment Corporation’s investment in LNG terminals.
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Hillary Clinton Remarks on State Capitalism and SWFs

Hillary Rodham Clinton

On February 19, 2012, U.S. Secretary of State Hillary Rodham Clinton made some remarks about state capitalism and sovereign wealth funds at the G-20 Ministerial in Los Cabos, Mexico.

Hillary Clinton stated, “Second, I would like to talk candidly about the challenges countries face from the emergence of what has been called “state capitalism”—the rise of sovereign wealth and the growing presence and influence of state-owned and state-controlled enterprises that operate globally.

Of course, every nation will decide how involved its government should be in its economy. But for our interconnected global economy to grow together, and for all countries to keep faith in the system, we need to work together to ensure that all companies compete by the same set of rules. When favored state-owned or state-supported enterprises enjoy preferential access to government resources and special protection from competition in their markets, that harms foreign competitors and local entrepreneurs alike.

Several years ago, when sovereign wealth funds began to increase their presence around the world, governments and the private sector came together and developed the Santiago Principles, a code of conduct designed to reassure the world that sovereign wealth funds would act transparently and focus on growth rather than other purposes.

Today, we need to develop similar understandings to ensure that companies compete on a level playing field, whether their owners sit in corporate boardrooms or in government ministries. We call this common-sense principle “competitive neutrality.” It is a principle that G20 members should reaffirm.”

Read more: To view the full speech

Saudi Aramco and Sinopec Create YASREF JV

According to the press release, “Saudi Aramco and China Petrochemical Corporation (Sinopec) have agreed to formation of a joint venture related to the ongoing development of Yanbu Aramco Sinopec Refining Company (YASREF) Limited, formerly the Red Sea Refining Company.

Presided over by His Excellency, Ali Ibrahim Al-Naimi, Minister of Petroleum and Mineral Resources and chairman of the Saudi Aramco Board of Directors, leaders of the two companies — Khalid A. Al-Falih, president and CEO of Saudi Aramco, and Fu Chengyu, chairman of the Sinopec Group – formally announced the agreement in Dhahran on Saturday.

The joint venture agreement follows a Memorandum of Understanding between Saudi Aramco and Sinopec, signed in March 2011. Following Saturday’s JV agreement, Sinopec will hold equity interest of 37.5 percent in YASREF, with Saudi Aramco holding the remaining 62.5 percent.

The YASREF joint venture marks another significant phase of several progressing partnerships between Saudi Aramco and Sinopec across the hydrocarbon value chain in Saudi Arabia and in China. Saudi Aramco and Sinopec both bring significant knowledge and expertise to the joint venture, which represents the strengthening of their strategic partnership to enhance the trade of transportation fuels between a major energy producer and a major consumer. In-Kingdom refineries, such as the one being built by YASREF, possess the location advantage to supply domestic and international markets to the East and West.

“Our mutually progressing partnership with Sinopec has continued to flourish across the hydrocarbon value chain from crude oil supply to refining and petrochemicals in Fujian to YASREF today, and is a testimony of our continued efforts to enhance collaboration between the two companies,” Al-Falih said. “YASREF, being Sinopec’s first international downstream investment, will definitely strengthen further the longstanding bond between the two companies, and I am confident it will also yield mutual benefits for the Kingdom of Saudi Arabia and the People’s Republic of China.

“YASREF is uniquely placed to seize market opportunities, and it demonstrates our unwavering commitment to significantly grow our downstream portfolio, and in creating win-win partnerships for us and our stakeholders,” Al-Falih added. “Among YASREF’s many contributions will be to provide training, employment and industrial and economic development opportunities for Saudi nationals and for the growth of local enterprises.”

“Sinopec and Saudi Aramco have enjoyed substantial cooperation in the fields of gas exploration, oil refining, oil trade, and engineering services. The implementation of this project will usher in a new chapter for Sinopec’s investment in refinery and petrochemical projects in Saudi Arabia,” Fu said. “It will also help to extend the strategic cooperation of the two companies in the petroleum and petrochemical value chain, and further strengthen the complementary strategic partnership of the two parties. Sinopec is very pleased to contribute to the already solid economic ties between China and Saudi Arabia, whilst furthering our commitment to social responsibility and the pursuit of green, low-carbon development.”

Sinopec has partnered with Saudi Aramco, along with ExxonMobil, in the Fujian Refining and Petrochemical Company Limited, and Sinopec SenMei (Fujian) Petroleum Company Limited in China’s Fujian Province, as well as with Sino Saudi Gas Limited, an in-Kingdom gas exploration company. Sinopec, the biggest Asian-owned refiner operating in Asia, is also Saudi Aramco’s largest crude oil buyer.”

Read more: Saudi Aramco Press Release

Qatar Petroleum and Shell Sign Complex Development Agreement

According to the press release, “His Excellency Dr. Mohammed bin Saleh Al-Sada, Minister of Energy and Industry of the State of Qatar, and Peter Voser, Chief Executive Officer of Shell, signed today a Heads of Agreement that sets the scope and commercial principles for the development of a world-scale petrochemicals complex in Ras Laffan Industrial City, Qatar. This agreement follows the conclusion of a joint feasibility study conducted by the partners, Qatar Petroleum and Shell.

The scope under consideration includes a world-scale steam cracker, with feedstock coming from natural gas projects in Qatar; a mono-ethylene glycol plant of up to 1.5 million tonnes per annum using Shell’s proprietary OMEGA (Only MEG Advantaged) technology; 300 kilotonnes per annum of linear alpha olefins using Shell’s proprietary SHOP (Shell Higher Olefin Process); and another olefin derivative. The complex will produce cost-competitive petrochemicals products to be marketed primarily into Asian growth markets. Qatar Petroleum will have an 80% equity interest in the project and Shell 20%.

His Excellency Minister Al-Sada said: “This critical petrochemicals project fits well with Qatar’s strategy to strengthen and further diversify its growing chemicals industry and represents an important milestone on our journey to become a significant global petrochemicals producer. In line with directives of His Highness, the Emir, Sheikh Hamad Bin Khalifa Al Thani, this large petrochemicals complex will provide Qatar with another viable option to extract optimal value from its natural gas resources.”

Peter Voser added: “This agreement marks the beginning of another partnership with Qatar Petroleum for the development of a world-scale petrochemicals project in Qatar. Coming on the heels of the inauguration of Pearl GTL, this new venture demonstrates the commitment of both parties to deepen our relationship even further. Shell values the opportunity to bring to Qatar the expertise and technology necessary to deliver a petrochemicals project of this scale and looks forward to its successful delivery.”

Qatar Petroleum and Shell have delivered Pearl Gas-to-Liquids (GTL) and Qatargas 4 this year; two of the world’s largest projects built in Ras Laffan Industrial City.”

Read more: Shell Press Release

Samsung C&T and KNOC Jointly Acquire Parallel Petroleum LLC

The press release states, “Samsung C&T and the Korea National Oil Corporation (“KNOC”) will jointly acquire US oil and gas company Parallel Petroleum LLC (“Parallel”). Samsung C&T Oil & Gas Parallel Corp., Samsung C&T’s local subsidiary in the US, and KNOC signed a Purchase and Sale Agreement with PLLL Holdings, LLC, which owns Parallel, in Midland, Texas on November 29th, 2011. Upon completion of the transaction, Samsung and KNOC will respectively own 90% and 10% of Parallel.

Parallel currently operates 8 oil and 2 gas producing fields in the states of Texas and New Mexico. Parallel produces approximately 8,400 barrels of oil and gas per day and has approximately 69 million barrels in reserves.

Through the deal, Samsung C&T will secure 50 professionals experienced in developing oil and gas fields. This will give Samsung C&T the ability to enhance its industry capabilities and strengthen its competitiveness.

Along with the investment in the Ankor oil fields in 2008, the acquisition of Parallel marked the significant foundation for the expansion of our natural resources business in the US market.

In 2008, Samsung C&T and KNOC jointly acquired the Ankor assets (daily production of approximately 16,000 barrels and reserves of approximately 71 million barrels) located in the Gulf of Mexico. Ankor currently produces oil from 17 platforms in 5 offshore oil fields, and Samsung C&T produces and explores for oil and gas from 10 other oil and gas fields around the world.”

Read more: Press Release

Swiss Waits for UN Green Light on Libya’s Frozen Assets

Switzerland is a major destination for foreign investments and international banking for governments. Regimes that are not in line with the United Nations have grown concerned about the safety of their overseas assets. Venezuela has shifted money and gold overseas back to Caracas. The Libyan Investment Authority and other Libyan state-owned assets were frozen internationally when the Libyan rebellion was well underway.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Georgia Seeks to Open up SOEs to Investors

Nikoloz Gilauri

Georgian Prime Minister Nikoloz Gilauri has proposed legislative amendments to start privatization efforts in several large state-owned enterprises. The amendments include floating minority stakes in the SOEs which could be on the Warsaw and London stock exchanges. The minority stakes could range from 15 to 25% of the SOE. Russia and other Central Asian countries have done similar things in the past year.

Three noteworthy SOEs pointed out were, the Georgian State Electric System, Georgian Oil and Gas Corporation Ltd., and Georgian Railway. Sovereign funds and other long-term investors are constantly on the search to find infrastructure assets backed by governments.

State of Indonesian State Owned Enterprises

Hatta Rajasa

Indonesian state-owned enterprises (SOEs) play a major part in the Indonesian capital markets. In September 2010, listed SOEs contributed to 29.5% of the total market capitalization on the Indonesian Stock Exchange. Like Malaysia and other Southeast Asian countries, Indonesia wants to increase privatization to drive the development of their capital markets and diversify sectors. Hatta Rajasa, Coordinating Minister for the Economy, recently said the Indonesian Government would halt plans for more state-owned enterprise initial public offerings this year. In addition, the Government of Indonesia is actively trying to limit the number of outstanding state-owned enterprises from 142 to 72 by 2014. Like many Asian centrally planned economies with state-owned enterprises, many are trying to grow profitability and increase operational efficiency.

As of fiscal year 2009, total revenues of Indonesian state-owned enterprises exceeded Rp 986 trillion (US$ 106 billion).  Also as of December 31, 2009, the assets of Indonesia state-owned enterprises reached 40% of GDP.

Beijing’s SASAC to reorganize some SOEs in a new holding company, China Reform Holdings Corporation Ltd

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Rio Tinto Group Scraps Chinalco Deal

NY Times reports, “the Chinese government’s largest investment ever in a Western company, a proposed $19.5 billion stake in the Australian-British mining giant Rio Tinto Group, collapsed early Friday, dealing a blow both to China’s global corporate ambitions and to its efforts to gain clout in the natural resources market.

The board of Rio Tinto announced the decision after meeting in London on Thursday, saying the company had ended the deal it struck in February to sell the stake to China’s state-owned Aluminum Corporation of China, also known as Chinalco.

The board said in a statement early Friday that it had ended the deal with Chinalco and would raise about $20 billion by issuing new stock and forming a joint venture with its longtime rival, the Australian mining giant BHP Billiton, the world’s largest mining company.”

read more: NY Times