China Investment Corp. (CIC), China’s sovereign wealth fund, is said to be investing USD 1.2bn to take a stake in Facebook, the privately owned California-based social network company, the Oriental Daily reported. The paper, citing undisclosed sources familiar with the situation who were in turn quoted by Business Insider, said CIC has appointed Citigroup to look at the possible investment. The paper added that apart from CIC, another Middle Eastern sovereign wealth fund is also interested in acquiring a stake in Facebook.
CIC, Facebook and Citigroup all declined to comment on the news, the report further said.
The Hong Kong Economic Times also carried a similar report. The paper said that based on the current estimated valuation of Facebook at USD 70bn, CIC is estimated to take a 1.7% stake in the social network company with its USD 1.2bn investment.
Seriously?? I don't have any great insight into the investment mandates and inclinations of CIC, but this deal seems a little bit ridiculous. Not least of which is the fact that Facebook cannot even be used in China.
So I decided to take a look at CIC to see what more I can find out. There should be no presumption that I will dig through boxes of filings and data - I simply started by checking out the CIC official website.
1. Corporate Profile
Always a good starting point to find out what exactly a company is. Relevant to this particular piece of news is the fact that i) CIC is wholly state-owned; ii) CIC does not seek controlling stakes nor operational influence in their investments; iii) CIC's investments are not limited to any sector, geography or asset class; iv) CIC is a commercial investment institution with full operational independency (i.e. supposedly, they act in autonomy from the Chinese government. But we don't really have to believe that do we?); v) registered capital of approx. USD200bn.
So far so good, because they haven't really told us anything useful at all yet. It seems like they can do whatever they want, and pretty much have as much money as they want to do it. The non-controlling stake part seems to be consistent with the rumour at least.
2. Press Releases
This will tell a little something about their recent investment activities. Nothing interesting as of recently, primary investments are in resource and energy companies. One instance of a wind energy company, oh and of course the infamous investment in Morgan Stanley. I do not see any tech investments in the past 3 years, which is as far back as their press releases date (CIC was set up in September 2007).
That said, it seems like the rumoured USD1.2bn figure is in the sweet spot of CIC. Most of their investments so far have been in the range of USD500m to USD2bn. However I can't shake off my suspicion that the rumour was crafted having known this fact. What I mean is the 1.7% stake is just a magic number, it's not like there were any other supporting rumours saying that Facebook was interested in raising approx. USD1bn, or a certain shareholder was interested in offloading a similar percentage stake.
3. Annual Report
Going through this is pretty grueling but sufficiently rewarding at the end of the day. I obviously have my BAU work to do so I just skimmed through this, but this is what I got out of it:
- Approx. 50% of the USD200bn of registered capital is allocated to global investment. For the mathematically-challenged, this means USD100bn.
- As at Dec 2009 global portfolio was approx. USD80bn. For the financially-indifferent this means CIC is sitting on shit tons of cash.
- Investment decisions are passed through 1 of 4 investment departments: Public Market, Tactical Investment, Private Market and Special Investments. I suppose Facebook would fall into Private Market or Special Investments. It's helpful to know that they have a department that will be able to take on the due diligence process but it really doesn't help very much in the analysis of the situation.
- As at Dec 2009, equity investments in North America accounted for approx. 44% of CIC's equity investment portfolio. Slight geographical bias?...
- I have no idea how to read their balance sheet, and there are no notes either. Why does it show over USD200bn of long term equity investments???
4. General Search & Other
This part is pretty much 90% Google and 10% industry knowledge. I happen to know that CIC released a regulatory filing to SEC in early 2010, but the whole US portfolio of CIC is too small to project any sort of investment strategy that they may be applying. The only interesting bit is that they hold 30,000 shares of Apple, but that is way too insignificant a stake to jump to any conclusions.
Final Commentary
I still think this rumour is bullshit.
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