Government Fund Weekly News Roundup – Low Oil Prices Continue to Impact SWFs, Sparking Shareholder Activism

August 05, 2016 by SWC Editors

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Workers at a Kazmunaigas facility.
Source: KMG EP

China Investment Corp., better known as CIC, makes a bold move into shareholder activism as low oil prices impact one of its investments in Khazakhstan. Saudia Arabia and Turkey debate the formation of new sovereign funds. And big-name funds continue to strike billion-dollar deals for real estate and infrastructure assets in Australia and the U.S.

China’s CIC takes an activist stance; Colombia taps stabilization fund

As low oil prices take their toll on the budgets of major energy-producing nations, sovereign wealth funds are becoming shareholder activists to protect the value of their assets — a turnaround from their traditionally passive investment approach. Chinese sovereign wealth fund China Investment Corp. (CIC) has led shareholders of Kazakh energy group Kazmunaigas Exploration Production (KEP) in an open revolt against a proposal by its parent company, Astana-based KMG EP, to tighten control over KEP's London-listed subsidiary. In the rejected agreement, the parent KMG, which is largely state-owned, proposed to buy out minority shareholders of subsidiary Kazmunaigas Exploration Production for $1.3 billion. CIC acquired an 11 percent stake in Kazmunaigas in 2009 and clearly does not wish to sell its holding.

Meanwhile, governments continue to tap into funds to make up the shortfall from lower oil revenue. Colombia's Minister of Finance, Mauricio Cardenas, has proposed withdrawing 10 trillion pesos ($323 million) from the country's sovereign wealth fund, the Fondo de Ahorro y Estabilización Petrolera. The money would be used to meet spending needs during the 2017–'18 budget.

Saudi Arabia, Turkey mull new fund launches

Two countries are reportedly considering establishing new funds to invest in their domestic economies. Saudi Arabia's sovereign wealth fund, the Public Investment Fund (PIF), together with the kingdom's Ministry of Commerce and Investment are set to establish a $1 billion domestic development fund. The new fund will help develop a local venture capital industry and support the creation of small- and medium-sized companies.

Turkey, meanwhile, is considering setting up its own fund to stabilize its national economy, although the move seems driven largely by the aftermath of the recent failed military coup. The Turkish government has sent a bill to parliament intended to set up a sovereign wealth fund. The proposed legislation would establish a company called Turkiye Varlik Yonetimi with initial capital of approximately $17 million, financed from the state-owned Privatization Fund. Turkey's Prime Minister Binali Yildirim said in a Bloomberg interview in July that the fund could ultimately have "tens of billions of dollars" at its disposal, although it’s unclear how it would be financed going forward.

SWFs target tower blocks, hospitals and roads

Sovereign wealth funds retain an appetite for a diverse menu of investments. Among the assets attracting attention this week have been tower blocks, healthcare providers and road builders. The Hong Kong Monetary Authority's Exchange Fund has purchased a 49 percent stake in a New York City tower block part-owned by Canadian government fund Caisse de dépot et placement du Québec (CDPQ) for $1.15 billion. Real Summit Investment, which invests in property for the Hong Kong fund, took the stake in the 1095 Sixth Avenue building from Chicago-based real estate private equity firm Callahan Capital Partners and Montreal-based real estate investor Ivanhoé Cambridge, which is a subsidiary of CDPQ.

Meanwhile, Sydney-based real estate firm Mirvac Group has reportedly approached Chinese sovereign wealth fund China Investment Corp. (CIC) to be a capital partner in the development of a 40-story office tower in Melbourne, Australia. Mirvac is offering CIC a stake worth A$500 million ($382.8 million) in the development, although Mirvac must first run the deal past the pre-emptive rights holder: the Australian arm of London-based insurance giant Aviva. And Singaporean sovereign wealth fund GIC is vying to purchase the Commerzbank Tower in Frankfurt, Germany, which is priced at approximately $808 million.

Bahrain Mumtalakat Holding Co., the island kingdom's sovereign wealth fund, has purchased a stake in Milan-based hospital and healthcare operator KOS Group for an undisclosed price. The company provides long-term healthcare and rehabilitation services, diagnostics and cancer care in its 77 facilities in Italy, India and U.K. Mumtalakat has acquired a significant minority stake as a part of a consortium led by Milan-based infrastructure investments firm F2i.

In India, the Abu Dhabi Investment Authority (ADIA) has invested approximately 260 million Indian rupees ($3.9 million) in Bhopal-based domestic road-construction company Dilip Buildcon. ADIA has taken nearly 1.2 million shares, priced at 219 rupees each, in the company's initial public offering (IPO). The allocation makes up 13.25 percent of the anchor investment, which totaled 8.96 million shares worth approximately $29.4 million. Dilip Buildcon is one of the country's leading private road builders and also works on water sanitation, sewage, irrigation and building construction.

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