Chesapeake Energy Restructures its Balance Sheet with Rapid-Fire Foreign Direct Investments
Chesapeake Energy Corporation, headquartered in Oklahoma City, is one of the largest producers of natural gas and the most active driller of new wells in the United States. Earlier this month, Chesapeake Energy announced that it expected to raise $5 billion of equity over the next 2 years to repay senior debt and increase investments. As part of that plan, it will sell up to a 20% stake in its Marcellus Shale properties before May 2011. Reuters reported that the sale of the Marcellus shale gas business will net Chesapeake at least $2 billion from the sale as part of its latest plan to raise cash.
Now, Korea Investment Corp (KIC) and China Investment Corp (CIC) are turning their attention to natural resources, which they see as more tangible than financial services, and may have bought stakes in Chesapeake Energy. According to the Financial Times, KIC and CIC were set to lead a $900 million investment in Chesapeake Energy, becoming the latest Asia-based groups to focus on the sector. While Chesapeake is set to issue the convertible preferred stock, KIC and CIC are expected to acquire $300 million each. At the same time that it announced its intended restructuring, Chesapeake also announced a sale of $600 million of nonvoting 5.75% cumulative non-voting convertible preferred stock to an affiliate of Singapore state investor Temasek Holdings and an affiliate of Beijing-based Hopu Investment Management Company. The offshore investors also received an option to acquire $500 million of additional preferred stock for 30 days. The Asian funds generally believe the price of natural gas, trading at less than a third of the price of oil on an equivalent basis, is at a cyclical low point and that demand will climb for environmental reasons. Today Chesapeake announced that it has sold $1.7 billion of its 5.75% cumulative non-voting convertible preferred stock to Asian investors. Although the release does not specify, based on the prior press speculation, those investors could include KIC and CIC and indeed that KIC and CIC led the deal as forecasted. It could also mean that Temasek and Hopu exercised their option. Chesapeake may provide information to clarify.