KIC mulls U.S. natural gas holding

Korea Investment Corp., the Korean sovereign wealth fund, is considering investing in Chesapeake Energy Corp., a U.S. producer of natural gas from shale rock.

A KIC official confirmed that KIC might join a consortium of Asian institutional investors, including China Investment Corp., who would buy a total of $900 million worth of convertible preferred shares in Chesapeake Energy.

“We are still under negotiations on this matter. Nothing has been determined yet,” said the KIC official.

The investment by KIC would reflect its increased interest in acquiring alternative assets, including natural resources, in addition to its traditional portfolio of stocks and bonds.

Scott Kalb, KIC’s chief investment officer, has said KIC plans to triple the amount of alternative investments, which include property, hedge funds, private equity and strategic partnerships, to 20 percent of the fund’s portfolio.

The KIC official said it may take at least another month before the fund decides whether to make the investment “since we are still in the process of reviewing the deal.”

It would be KIC’s second big strategic investment in a foreign company after its ill-fated stake in Merrill Lynch in 2008.

KIC, which is owned by the central bank and the Ministry of Strategy and Finance, now has assets of $31 billion, making it one of the smaller sovereign wealth funds.

The Financial Times reported yesterday that KIC and CIC would each invest $300 million in Chesapeake Energy, which plans to offer $900 million in preferred shares in a new issue. It earlier sold $600 million worth of shares to Temasek Holdings, the Singapore sovereign fund, and Beijing-based Hopu Investment Management. Both these entities may participate in buying the new share issue by Chesapeake Energy as well.

However, the KIC official said that “the exact amount of investment has not yet been confirmed.”

Asian sovereign funds see natural gas as an attractive investment since natural gas prices are at a cyclical low point, but demand is likely to climb due to environmental concerns.

The price of natural gas has declined by about 25 percent this year.

By Jung Jae-yoon [jyj222@joongang.co.kr]