CIC, Dairy Giant Fonterra in Fund Investment Talks – WSJ

China Investment Corp – is in talks with New Zealand dairy giant Fonterra Co-Operative Group about investing in its shareholder fund  – according to the Wall St Journal.

The WSJ reported today that CIC, which manages a chunk of China’s massive foreign-exchange reserves, is considering investing in the Fonterra non-voting units later this month with its initial investment expected to be less than $US100 million.

Fonterra senior executives have been on a major mission to Asia to pump investments in the forthcoming issue.

The CIC interest underscores a NZ Herald  article in May 2009 where Fran O’Sullivan reported that “Major Chinese investors – such as China’s sovereign wealth fund – have also expressed an interest in buying shares in Fonterra if it is ultimately listed” .

The potential deal reflects Beijing-based CIC’s increased focus on foreign businesses that could benefit from growth in China’s economy, one of the people said. As its chairman, Lou Jiwei, put it in a June interview, CIC is looking for overseas investments with “a China angle or a China factor.”

WSJ said that the Fonterra deal would also represent the fund’s shift toward long-term, low-risk assets that can throw off steady cash flow. CIC recently invested about $2 billion in Alibaba Group Holding Ltd. as part of the Chinese Internet company’s buyback of a large stake from Yahoo Inc. and bought a 10% stake in the holding company that runs London’s Heathrow Airport. It’s close to purchasing 12.5% of some Canadian timber assets from an infrastructure affiliate of Brookfield Asset Management Inc.

With about $US482 billion in assets under management, CIC is the fifth-largest country fund in the world.

A Fonterra statement emphasized the Fonterra Shareholders’ Fund Institutional Offer is being made to institutional investors in New Zealand, Australia, and certain other overseas jurisdictions in Asia and Europe. As detailed in the Fund Prospectus (Section 8, page 136), on 26 and 27 November 2012, the Joint Lead Managers will undertake a bookbuild by inviting selected institutional investors and NZX firms to indicate the number of Units they wish to apply for at a range of prices.

Fonterra and the Joint Lead Managers have spoken with a large number of institutional investors, as would be expected for an offer like this.  These meetings are confidential. However, until the bookbuild process has been completed, it is impossible to know what any institution’s ultimate intention might be.