Beijing and Moscow to put $1bn each in fund

Financial Times, By Jamil Anderlini in Beijing, 13.10.2011
China’s main sovereign wealth fund will invest $1bn with its Russian counterpart, in a move that will be matched by the Russian Direct Investment Fund as it sees its first capital commitment since it was established in June.

The agreement was signed in Beijing on Tuesday at a meeting between Wen Jiabao, Chinese premier, and the Russian prime minister Vladimir Putin, who is in China for his first overseas visit since announcing his intention to reclaim the Russian presidency next year.

China Investment Corp and RDIF will both contribute $1bn to a new Russia-China Investment Fund, which is also hoping to raise an additional $2bn from other Chinese investors.

The new Sino-Russian fund will be managed primarily by the RDIF and is required to make at least 70 per cent of its investments in Russia, Kazakhstan and Belarus. The new fund plans to announce its first direct investment within six months.

Kirill Dmitriev, RDIF’s chief executive, said the new fund would concentrate on agriculture, consumer products and green energy, rather than natural resources or real estate.

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“All of the investments we make will be in companies or projects that benefit the Russian and Chinese economic relationship,” he said. “This is a vote of confidence for Russia and for RDIF less than four months after our launch.”

Mr Wen and Mr Putin did not, however, appear to make any progress on long-running negotiations over a pipeline and potential gas sales from Russia to China, which have dragged on for years.

“In political, humanitarian sphere we have no problems at all, we have reached unprecedented levels of co-operation,” Mr Putin told reporters after his meeting with Mr Wen. “As far as the economy and trade are concerned, issues of pragmatic nature are being resolved … Those who sell always want to sell at a higher price, while those who buy want to buy at a lower price. We need to reach a compromise which will satisfy both sides.”

The co-investment is one of the largest commitments by the CIC, which controls more than $410bn, to a single investment manager and highlights the Chinese fund’s growing interest in non-western markets.

While Lou Jiwei, CIC chairman, has previously spoken of the rich opportunities for Chinese investors in Russia, the fund has shown little interest in its northern neighbour until now, having made only a handful of real estate investments and taken a small stake in Russia’s VTB Bank for $100m.

Mr Lou has been appointed to RDIF’s international advisory board, alongside the heads of the Korean and Kuwait sovereign wealth funds and the founders and chief executives of private equity firms TPG, Blackstone, Apollo, Apax, Warburg Pincus and Permira.

RDIF aims to raise $50bn from co-investors over the next five to seven years, in addition the $10bn already pledged by the Russian government. It is required to invest mostly in Russia and must secure outside co-investment that at least matches its own commitment for every dollar it invests.

“We believe we will make fewer investment mistakes by co-investing with experts and this also forces people to come invest in Russia,” Mr Dmitriev said. “We are moving very quickly to show momentum and that Russia is an attractive investment destination.”

China and Russia signed a number of other agreements as part of Mr Putin’s visit, almost all of them between state-owned enterprises from the two countries. The largest was a deal in which China Development Bank will provide $1.43bn of project finance for Russian aluminium group Rusal to build a smelter in Siberia.