China Investment Corp cowers from Canada after mining, energy investments sour

Claudia Cattaneo | December 30, 2015 

Kevin Van Paassen/BloombergFelix Chee opened the Toronto office and was replaced in 2013 by Winston Ma (pictured), who studied at New York University and worked as an investment banker at Barclays Plc and JPMorgan Chase & Co in New York for more than five years. Ma is expected to move to the New York office, due to open in March.

After a string of bad investments, China Investment Corp. (CIC) has shut down its Toronto office and is opening a new one in New York, part of a quiet retreat from Canadian natural resources by China’s state-controlled entities.

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The decision ends a five-year presence by China’s sovereign wealth fund in the city, picked for its first and only overseas office to monitor investments in Canada’s mining and oil and gas sectors, a top Chinese priority when they were made.

But with commodity prices tanking, partly because of slowing growth in China, and CIC’s Canadian buying spree long over, it is opening a new base in New York in the new year as part of a change in investment strategy, a source confirmed.

In the U.S., CIC wants to take advantage of the high American currency and contribute to the launch of a new subsidiary, CIC Capital Corp., that will invest in overseas infrastructure projects. It is also looking to team up with other firms as co-investors.

CIC was founded in 2007 by the Chinese government to help the country earn a higher return on its pool of foreign exchange reserves, worth US$3.44 trillion at the end of November. CIC manages US$747 billion.

Some of that money flowed into Canada at the height of the commodity boom. CIC committed US$500 million in 2009 to SouthGobi Resources Ltd., the Vancouver-based company with operations in Mongolia, then invested $1.7 billion in Teck Resources Ltd.

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Beginning in 2010, CIC made four strategic investments in the oilsands worth about $1.9 billion in total: $500 million in the initial public offering of Athabasca Oil Corp., considered one of the most overpriced IPOs in Canadian history; $1.25 billion in a pair of deals with Penn West Petroleum Ltd., which has been rocked by an accounting scandal and other problems; US$150 million in Sunshine Oil Sands Ltd., a junior oilsands company that at one point had to halt development of its West Ells project because it ran out of money; and MEG Energy Corp., where CIC invested $100 million before the company went public.

All Canadian positions became big money losers. In some cases CIC is now the largest shareholder after others bailed. The move to New York may signal CIC will cut its Canadian holdings.

Felix Chee opened the Toronto office and was replaced in 2013 by Winston Ma, who studied at New York University and worked as an investment banker at Barclays Plc and JPMorgan Chase & Co in New York for more than five years. Ma is expected to move to the New York office, due to open in March.

CIC held a ceremony to launch CIC Capital last July. The subsidiary will focus on infrastructure, agricultural, forestry and fishery projects abroad.

Other Chinese investments in the Canadian oil and gas sector were made by state controlled companies that are also quietly scaling back plans.

Brion Energy, the Canadian unit of Petro-China, is expected to complete the first phase of its MacKay River in situ oilsands project in June, 2016  — some 18 months later than expected and at a cost of $2.2-billion, up from $1.2-billion under original plans. Further expansions of MacKay River and the start of construction of a second oilsands project, Dover, are rumoured to be on the shelf. Brion officials did not respond to requests for information.

CNOOC Ltd. and Sinopec Ltd. also built a large Canadian presence, but growth plans are on hold for the foreseeable future, according to industry sources.

However, bucking the state-sponsored retreat is private Chinese capital, which is picking up distressed Canadian oil and gas assets at bargain basement prices.

The latest deal this month involved a group of unnamed Chinese investors who purchased Calgary mid-sized producer Long Run Exploration Ltd. They paid 52 cents per share or $100 million for its equity, and took over Long Run’s $679 million debt. More are waiting in the wings, poised to jump in ahead of a recovery.