Government Fund Weekly News Roundup — As SWFs Brace for Brexit, Russia’s RDIF Embarks on a Shopping Spree

June 24, 2016 by SWC Editors

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In the news this week: Singapore’s GIC fastens its seatbelt for a turbulent post-Brexit ride. Russia’s state-run development fund the Russian Direct Investment Fund (RDIF) launches an eclectic shopping spree. And troubled mining companies try to get on the good side of their sovereign-fund investors.

Singapore's GIC Braces for Market Turbulence Post-Brexit

While investors all over the world anxiously hedge their portfolios against market volatility in the aftermath of the U.K’s vote to leave the European Union — known colloquially as 'Brexit’ — Singapore's sovereign wealth fund GIC has been reassuring its stakeholders that it’s perfectly capable of weathering the storm. Lim Chow Kiat, GIC’s deputy president and group chief investment officer, released a statement this morning reiterating GIC’s long-term stance and affirming, "What's most important to us is that markets remain open." Lim made the comments as global financial markets reeled as the final voting tallies confirmed the heretofore unthinkable result: The U.K. wants out of the E.U. The British government now has two years to implement a divorce from its largest trading partner. GIC has approximately $25 billion invested in the U.K., or 7 percent of its portfolio, according to Sovereign Wealth Center estimates, making it one of the most exposed state investors operating in the British Isles. In 2015, sovereign wealth funds plowed $12.5 billion into foreign direct investments in the U.K., making it the third largest target market (in dollars allocated) for government funds after the U.S. (at $17.9 billion) and China (at $14.4 billion).   

Pursued by a Bear: RDIF’s Jumble of Acquisitions

Here’s a head-scratcher for you: What do a futuristic transport company, a French tableware maker and Russian helicopter manufacturer all have in common? They’ve all caught the eye of the Russian Development Fund (RDIF).

Russia’s state-run development fund started making headlines at the end of last week when it announced no fewer than five separate deals simultaneously. Alongside several unnamed Middle Eastern SWFs, RDIF bought a 25 percent stake in Moscow-based helicopter manufacturer Russian Helicopters for $600 million. RDIF also invested in St. Petersburg-based cereals producer AFG National Agro Holding with the help as-yet-unidentified Middle Eastern funds. Next up? RDIF’s new agreement with CDC International Capital, a unit of Paris-based development fund Caisse des Dépôts et Consignations, to support the global expansion of French tableware manufacturer Arc International. Lastly, RDIF made two healthcare investments, allocating capital to St. Petersburg-based pharmaceuticals firm Geopharm and signing an agreement with Chinese partners to finance a project manufacturing robots for use in medical procedures.

Just in case that wasn’t enough news, RDIF also inked a partnership with Italian construction group Impresa Pizzarotti & C. and the municipal government of St. Petersburg to invest in the design, construction, maintenance and technical operation of a medical pavilion for St. Petersburg's Municipal Hospital №40.
Another RDIF healthcare investment this week  

RDIF also participated in the Series B financing round for Los Angeles-headquartered experimental transport company Hyperloop One. The company’s technology uses pods tipped with a compressor; pressurized air then levitates and accelerates to pods to high speeds through connected tubes. Although the project is currently only in the testing stage in the Nevada desert, Moscow already has a keen eye on its own Hyperloop transport system. RDIF’s investment was announced as Hyperloop One and Moscow-based construction-and-engineering conglomerate the Summa Group partnered to launch a feasibility study on building a Hyperloop system for Russia's capital.

Mining Firms’ Debts Leave SWFs Digging Deep

Vancouver-based mining company SouthGobi Resources, which operates coal mines in Mongolia, is once again renegotiating a debt obligation to China’s sovereign wealth fund, China Investment Corp. (CIC). SouthGobi has been struggling with its debts to CIC for some years: In 2014, the company raised $9 million through a private placement to meet its debts to CIC. On May 30, SouthGobi deferred an interest obligation to CIC, agreeing to repay $18.7 million by June 17. The deadline passed without payment and the company is now trying to negotiate a payment extension. Cash-strapped SouthGobi is struggling with low coal prices and a slump in demand for the fossil fuel in China, where nuclear and renewable electricity generation is rapidly replacing coal-fired power stations as the government seeks to assuage citizens’ disquiet over widespread air pollution.

Meanwhile, Irish mining firm Kenmare Resources released further details of its recent capital-raising effort, which began in late April. Oman’s sovereign wealth fund, the State General Reserve Fund of the Sultanate of Oman (SGRF) — which is already participating as a cornerstone investor — has now agreed to commit $100 million via a subsidiary, SGRF Investor, towards Kenmare’s fundraising. The company is seeking to generate at least $275 million in new funds (up to a maximum of $368 million) to reduce its debts and accrued interest. In the event of Kenmare raising just the minimum, SGRF’s $100 million investment would convert into a 29.18 percent stake in the company on completion of the capital restructuring. Should Kenmare raise the $368 million maximum, SGRF’s holding would translate into a stake of 24.3 percent.

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