China’s Inventis In Indirect Route To North American Energy

  • Political sensitivities a concern
  • Chinese security strategy also an issue
  • Looking at smaller targets

Bids by Chinese state firms have provoked political firestorms in the United States and Canada where lawmakers fear losing control of resources to state-run foreign firms. Notable cases include CNOOC’s failed 2005 bid for Unocal and more recently CNOOC’s $15 billion bid for Canada’s Nexen Inc.

A low-key investment by a private financial firm like Inventis may be more palatable for edgy Western politicians, said Inventis CEO Yong Kwek Ping, but opposition could be rekindled if Inventis exits its deals, as it plans to, by selling the stakes to Chinese state-owned companies. Inventis, which has raised more than $1 billion to acquire overseas assets, plans to buy minority or majority stakes in small energy companies in Canada and the United States, he said. Investing in smaller companies and growing them for several years could reduce suspicions from foreign governments, he said.

“We need to invest in projects that China needs. Projects that involve China’s security strategy … and one of the obvious targets will be energy and natural resources,” he said. “It’s extremely sensitive for the Chinese, particularly the three big state-owned oil companies, to get in directly, so they should take the indirect approach.”

Inventis would consider selling those stakes to Chinese state companies later, he said. “We have very good support from state-owned companies for this approach. So whenever we move into a project, we already have some idea who will be our next buyer.”

Inventis will however, still require regulatory approval from the country in which it is investing if it seeks to sell to a Chinese state-owned firm, so it still faces the potential risk posed by political opposition. “We could face the same issue, but I think the intensity will be less. If (one) can be low key, that would be better for some projects.”

The fund could sell to investors elsewhere if politics stand in the way of sales to Chinese firms, he said. “Buyers could be anybody, but our main target will be selling back to the Chinese companies.” China is seeking to secure its future energy supplies as the $7 trillion-plus economy continues to grow at more than 7 percent a year, boosting fuel demand. Its state-owned companies have amassed stakes in companies in Africa, Australia and Asia.

Inventis is considering investing in mining and energy and a key focus will be U.S. shale gas, said Yong. China is focusing on developing the fuel after witnessing a shale boom edge the United States closer to energy self-sufficiency after decades of growing dependence on imports.
“We are trying to look at some good shale gas projects or companies to acquire to work with in U.S. and Canada. Subsequently, we are trying to take the technology back to China,” he said.

The fund also will consider mining and energy assets in developing nations such as Indonesia and in some African countries.
Inventis manages two outbound funds of 4 billion yuan ($640 million) each, largely made up of investments from city governments, pension funds and insurance firms, Yong said.

One of the two is a pure renminbi fund. The other is a hybrid fund with 49 percent of the money in U.S. dollars.

One domestic hurdle the hybrid fund faces is winning regulatory approval to invest the yuan overseas. Each such investment requires approval from SAFE, the country’s currency regulator. The dollar part of the hybrid fund will serve as a backup in case SAFE approval becomes a problem, Yong said.

The fund, which was launched a year ago, has yet to make any investments or acquisitions, said Yong, an information technology entrepreneur turned private equity professional.

Ramya Venugopal is a correspondent for Reuters in /Singapore; additional reporting by Stephen Aldred in Hong Kong.