CIC promises patience amid strong pressure to earn profit

PUBLISHED : Wednesday, 12 December, 2007, 12:00am
UPDATED : Wednesday, 12 December, 2007, 12:00am

The nation's new sovereign wealth fund may have to struggle to generate enough profit to pay interest due to its backers but the company will take a patient approach to building its investment portfolio around the globe, fund general manager Gao Xiqing said.

China Investment Corp was set up in September with 1.55 trillion yuan in special treasury bonds from the Ministry of Finance with the aim of investing a share of the nation's US$1.46 trillion foreign exchange reserve overseas. It was supposed to seek better returns for the cash but lost heavily in its first investment in United States private equity fund Blackstone Group.

CIC paid US$3 billion for 9.4 per cent of Blackstone Group but the net value of the investment had shrunk as of Friday to about US$2.215 billion, a net loss of US$785 million.

The finance ministry this week sold 750 billion yuan in special bonds to the central bank as part of the promised 1.55 trillion yuan for the CIC and the central bank will then inject the same amount of US dollars into the corporation. The securities carry a 4.45 per cent coupon and the finance minister promised to pay returns to bond owners twice a year.

CIC chairman Lou Jiwei said earlier that the corporation had to pay the bond issuer about 300 million yuan every working day and the burden had put huge pressure on him and his organisation.

Mr Gao told a Beijing forum hosted by Caijing magazine yesterday that the need for these kinds of returns had put a lot of pressure on CIC's management team.

'I'm not sure at this point if we can do better than that. I think it's not easy for us to be successful,' he said.

Mr Gao said that even with the interest pressure, CIC would take time to build a sound internal governance structure to expand its investment front.