2nd UPDATE: Chesapeake Wins Asian Partners In Move To Cut Debt
May 11 2010 - 10:11AM
Dow Jones News
Chesapeake Energy Corp. (CHK) outlined a series of steps Monday
to raise up to $5 billion over the next two years to reduce debt
and attain an investment-grade rating, including investments from
Singapore's Temasek Holdings Pte. Ltd. and a Chinese private equity
firm.
The investments by Temasek, the Singaporean sovereign-wealth
fund, and China's Hopu Investment Management Co. mark the latest
attempt by Asian companies to grab a share of unconventional
shale-gas drilling in the U.S. The technology has the potential to
significantly add to U.S. natural gas supplies.
In April, Indian conglomerate Reliance Industries Ltd.
(500325.BY) agreed to pay $1.7 billion to Atlas Energy Inc. (ATLS)
for a big stake in the Marcellus Shale, a massive natural gas-rich
rock formation underlying Pennsylvania, New York and other states.
Chesapeake also has holdings in the formation. That deal followed
Mitsui & Co. (8031.TO) saying in February it would invest about
$1.4 billion in the Marcellus, buying nearly a third of an interest
held by Houston-based Anadarko Petroleum Corp. (APC).
Chesapeake plans to use $3.5 billion of the proceeds to repay
debt and the remaining $1.5 billion to boost its investment in
liquids-rich plays. The company last year was stung by sharply
lower commodity prices as a result of lower demand coupled with
large supply increases as new reserves opened up from
unconventional shale-gas drilling in the U.S.
Among other actions, the natural gas company announced a private
placement of convertible preferred stock and signed a securities
purchase pact with an affiliate of Temasek as well as Hopu. The
firms have agreed to buy $600 million of Chesapeake's 5.75%
convertible preferred stock and have a 30-day option for an
additional $500 million for investors in Asia.
A person familiar with the matter said the shares, when
converted, would represent a 7% stake in Chesapeake. Temasek would
get $500 million of the initial preferred stock while Hopu would
get the rest, and talks continue on the division of the optional
$500 million, the person said. The preferred stock carries an
annual dividend of $57.50, and each share will be convertible into
about 37.037 shares of Chesapeake common stock.
In addition, Chesapeake will sell up to a 20% interest in unit
Chesapeake Appalachia LLC, which includes its Marcellus Shale
operations, within the next three to 12 months.
In premarket trading, shares of Chesapeake were down 15 cents at
$22.95 a share.
The investment represents a shift in Temasek's investment
strategy, as the majority of the state-owned company's investments
are in Asia and in financial services.
Former BHP Billiton Ltd. (BHP, BHP.AU) Chief Executive Charles
"Chip" Goodyear, who was slated to lead Temasek but quit before
starting the post, was widely expected to spearhead an effort to
diversify Temasek's investments both geographically and by sector.
Investments in the resources sector was expected to have become
more of a priority for Temasek under Mr. Goodyear, but he resigned
last year, citing "differences regarding certain strategic
issues."
For Hopu, a $2.5 billion private equity fund started by top
China dealmaker Fang Fenglei, the pact also marks something of a
change, as it is the fund's first investment outside of China.
Hopu's investment in Chesapeake is a strategic play on clean
energy, a person familiar with Hopu's strategy said. There is also
some anticipation that Chesapeake may look to do something in China
in the near future, giving Hopu an opportunity to act as a partner,
the person said. Hopu recently advised Argentina's Bridas Energy
Holdings Ltd. on its US$3.1 billion oil and gas production joint
venture with Cnooc Ltd. (CEO, 0883.HK).
This is the second energy-related deal that Temasek and Hopu are
jointly investing in. The two investment firms jointly invested in
Iron Mining International, a Mongolian iron-ore mine previously
known as Lung Ming Investment Holdings Ltd. Iron Mining is seeking
an initial public offering in Hong Kong.
The firms recently jointly invested in China Yurun Food Group
Ltd., a Chinese pork producer. Last year the two firms were part of
a consortium that bought shares of Bank of China Ltd. (3988.HK) and
China Construction Bank Corp. (0939.HK) from Royal Bank of Scotland
PLC (RBS.LN) and Bank of America Corp. (BAC)
-By Lauren Pollock and Ellen Sheng, Dow Jones Newswires;
212-416-2356; lauren.pollock@dowjones.com
(Costas Paris contributed to this article)
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