(Dow Jones Newswires), May 11, 2010
Chesapeake Energy 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 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 agreed to pay $1.7 billion to Atlas Energy 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 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.
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
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 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
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
This is the second energy-related deal that Temasek and Hopu are jointly investing in. The two investment firms jointly invested in
The firms recently jointly invested in China Yurun Food, a Chinese pork producer. Last year the two firms were part of a
Copyright (c) 2010 Dow Jones & Company, Inc.
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