Florence Chong | June 18, 2009 Article from: The Australian HAVING made its first offshore foray with a $US800 million ($1 billion) investment in a global property fund, China Investment Corporation has arrived in Australia.
CIC, the world's newest and possibly the largest sovereign wealth fund, became a strategic investor in the Goodman Group this week.
Under the deal, negotiated over several months, CIC has initially provided Goodman with short-term bridging finance of $200m, equating to about 8 per cent of the Australian company when converted into equity.
Goodman chief executive Greg Goodman said CIC would be a long-term investor. "CIC likes industrial property. They have clearly done a lot on work on the group and we will be working with them in a way which will be complementary to our funds management, development and total business," he said.
Mr Goodman envisions working in joint ventures with CIC on offshore projects and in China, where it has about $200m worth of assets and a similar amount in development.
He hopes CIC involvement will aid Goodman's own aspirations in China. "It can help us along quite nicely."
Shanghai-based Michael McCormack, executive director at Z-Ben Advisors, an independent financial research house and consultancy, said investment in Goodman was a sensible move for CIC.
Such an investment would dovetail with CIC's longer term investment strategy and fitted neatly with its three key investment criteria, he said.
CIC is looking for a good entry time and good entry price.
"Arguably, it is able to get a substantially better deal today than it could 18 months ago," Mr McCormack said. "Goodman represents the right group with the right structure of investment and the right location. And it comes at the right time for CIC."
Not many logistics providers around the world, had "big footprints" and fully integrated businesses, Greg Goodman said. "There are only two or three to look at. We are the only one in this part of the world, with the size and scale which CIC is looking for," he said.
Mr McCormack said CIC's preference was to invest in countries with a strong link to China's development and growth.
"They are interested in Asian investments, or investments in countries where there is strong bilateral trade with China, and which will benefit from trade with China over the next 20 years or so," Mr McCormack said. "As they take a long-term approach, they are easily able to absorb a lot of volatility in their investments." The fledgling wealth fund, formed in September 2007, does not have a weighting to different asset classes.
Mr McCormack, who has followed CIC closely, said its stated intention since its early days was to have a well diversified portfolio that would include property among other asset classes.
"While they liked the idea (of property), they didn't like the timing until this year," Mr McCormack said.
Chinese media recently quoted sources within CIC as saying they expected real estate prices in developed markets, including Australia, to fall further this year.
In fact, CIC chairman Juo Jiwei visited Australia in February to assess first-hand the opportunities in the resources sector.
CIC hired Collin Lau to head its real estate and alternative investment operations late last year, signalling an increasing focus in the sector. Mr Lau was managing director of Starr International, a private equity investor, running its Asian operations from Hong Kong.
Mr McCormack said CIC had about $US80bn of "free money" to invest and the State Council was expected to allocate "substantially more money" to CIC. Half of its original budget of $US200bn had been spoken for when it inherited a portfolio of domestic assets.
Offshore, its investment is heavily weighted toward the financial services sector. It is involved in US firm BlackRock's $US13.5bn takeover of British firm Barclays Global Investors.
CIC burst into international consciousness when it took large stakes in US investment firm Morgan Stanley and private equity firm Blackstone before the global financial meltdown.
Those investment, totalling $US8bn, incurred heavy paper losses when Wall Street collapsed.
However, it chose to bolster its investment in Morgan Stanley, participating its $US2.2bn public offering this month and boosting its stake to about 9.86 per cent. As well, it became a key investor in the $US6bn Morgan Stanley Real Estate fund, VII Global, committing to invest $US800m with it in April.
Another recent investment is a joint venture with US private equity firm JC Flowers to set up a $US4bn fund to buy distressed financial companies in the US.
Other notable investments include more than $US100m as a strategic investor in global credit card issuer Visa's initial public offering.
Given the close links between Singapore and Beijing, it is not surprising that CIC has been a co-investors with Singapore's sovereign wealth fund, Government of Singapore Investment Corporation (GIC).
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