Temasek and Hopu drill deep into Chesapeake

Singapore sovereign wealth fund Temasek and Chinese private equity firm Hopu Investment Management have agreed to invest $600 million in a private placement in New York Stock Exchange-listed oil and gas developer Chesapeake Energy Corporation, the company said in a statement.

The investment will be made through Temasek affiliate Maju Investments and Hopu’s Hampton Asset Holding. The two firms will purchase a new series of Chesapeake 5.75 percent cumulative non-voting convertible preferred stock with a liquidation preference of $1000 a share. 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. 

Additionally the two firms will have a 30-day option to place a further $500 million with other investors in Asia, the statement noted.

Oklahoma-based Chesapeake announced the deal as part of a $5 billion fundraising exercise in which the company will use $3.5 billion of the money raised to repay debt and the remainder to expand their business.

The company said it was hit hard last year by low commodity prices resulting from low demand and surplus from new reserves opened by unconventional shale-gas drilling in the US.

In a separate statement, Chesapeake also said it had plans to sell up to 20 percent of its subsidiary Chesapeake Appalachia as part of its fundraising strategy. This includes its operations in the Marcellus Shale – a massive gas-rich rock formation beneath New York and Pennsylvania.

The $119 billion-strong Temasek and Fang Fenglei’s $2.5 billion Hopu are heavy investors in the energy sector. Last month Temasek announced it was investing $200 million in Indian power generation, transmission and distribution company GMR and around the same time, Hopu led a $110 million investment in Chinese coking coal company Winsway. In 2008, the two firms pumped $300 million in iron ore miner Lung Ming (now Iron Mining International).

They are also frequent collaborators, with Temasek being one of Hopu’s anchor investors. In May 2009, the firms reportedly co-invested $7.3 billion to buy a six percent stake in China Construction Bank from Bank of America. Their most recent partnership prior to Chesapeake came in the form of a $235 million investment in meatpacker China Yurun Food Group.

Chesapeake Energy  closed at a share price of $21.91 yesterday.