Korea Investment Corporation, the nation’s fast-growing $65 billion sovereign wealth fund, has agreed to form a cross-border platform for private equity co-investments with Russian state fund RDIF.
The signing ceremony with the Russian Direct Investment Fund took place in Seoul yesterday in the presence of Russian president Vladimir Putin and his South Korean counterpart, Park Geun-hye. It formed part of Putin’s one-day state visit. Putin held high-level talks with KIC back in June 2011, as reported.
A spokeswoman for RDIF explains the platform is a way to facilitate direct cross-border investment. Both the RDIF and the KIC have agreed to make an initial capital commitment of $250 million each in a first tranche.
This is expected to rise to $500 million each for $1 billion overall, although RDIF gave no timeframe. Primarily the partnership will focus on striking private equity investments in Russia, although there will also be Russian capital heading into Korea.
The RDIF spokeswoman tells AsianInvestor that capital commitments will be evaluated on a deal-by-deal basis. “We are looking at structuring deals which make sense and are profitable for both sides. These will be private equity-style deals,” she states.
RDIF was created in 2011 by the Russian government as a $10 billion fund. Since its inception it has had KIC president Choi Chong-suk on its international advisory board.
However, Choi resigned from the KIC earlier this month for personal reasons, as reported. His duties have been assumed on an interim basis by Lee Dong-ik, KIC’s chief investment officer.
RDIF has struck similar deals with co-investors around the world since its inception, including China Investment Corporation last year, as reported, and the Japan Bank for International Cooperation.
The deal with CIC was the first of its kind at the start of 2012. After a lengthy setting-up process their co-investment platform has made two capital injections into Russian Forest Products, the nation’s second largest timber industry company. Jointly they now hold a 42% stake in the firm.
The RDIF spokeswoman adds that Vladivostok and the surrounding area which is near China and North Korea suffered severe flooding this year and is in need of regeneration capital. It is understood forestry and infrastructure deals are on the agenda for the investment platform with KIC.
“KIC is looking at areas for cross-country cooperation,” she says. “Eastern Europe is an attractive area [for KIC] to invest, not least because of its proximity to Asia. It will be looking at various areas, including infrastructure.”
On September 12 this year RDIF set up a $5 billion infrastructure fund with Abu Dhabi’s department of finance. This is to invest in Russian infrastructure projects and capitalise on cross-border investment opportunities between Russia and the UAE.
In a written statement, KIC chief investment officer Lee notes that Russia is Korea's 11th largest trading partner, representing about 2.1% of its trade. He adds there are more than 1,200 Korean companies with capital invested in Russia.
“The launch of this joint investment platform will provide additional opportunities for businesses from both Korea and Russia to further develop these relationships,” he says. Lee was unavailable for interview at press time.
In the same statement announcing the deal, RDIF’s chief executive, Kirill Dmitriev, points out that Korea’s direct investment into the Russian Federation had declined six-fold since 2009.
“I am confident that the creation of the Russian-Korean Investment Platform will help to reverse this trend and act as a catalyst for strong growth in investment flows between our two countries and strengthen economic cooperation,” he says.
RDIF’s management company is a wholly owned subsidiary of Vnesheconombank. Since inception it has invested more than $3.5 billion into Russian companies prior to this latest deal, of which $850 million was invested by RDIF and $2.8 billion from international co-investors.