Kunlun Energy is a subsidiary of PetroChina Company Limited, China's largest gas producer by capacity. KE is Hongkong-based as is listed on the HK stock exchange. It focuses on the exploration, development and production of crude oil and natural gas.
Mid 2012 KE issued new share placement of about US$1.3B. Temasek and RJJ Capital took out half of the placements. How much was Temasek's investment is not publicised. The placement was for 800,000,000 shares, so Temasek and RJJ took 400,000,000. My guess is Temasek being the giant and RJJ the dwarf, the split between the two of them is 3:1. The issue price was HK$13.10 so Temasek's investments worked out to HK$4.23B, roughly US$506,000,000.
Today, KE's price is HK$5.22. Temasek is sitting on roughly US$202,000,000 unrealised losses.
Temasek, and many other investors, bought into Ji Xiping's 'Greening of the economy' policy. It was a move towards building a resource-conscious and environmentally friendly society. The LPG play had main stage. By 2015 it became clear demand for natural gas was not going to have the volumes as earlier thought. KE price retreated by more than 50%.
Natural gas is still a very important part of China's long term future plans. It has in the meantime restructured its gas pipeline. The vast network of pipelines has now been taken over by PetroChina and Sinotec at positive valuations which allowed those who built the infra to exit without losses. The use of pipeline transmission will be open to all natural gas suppiers at a fair price. This is positive for LNG players like KE.
KE is not in distress. In fact, at today's low price, it is a recommended buy. But for Temasek, who bought in at the height, it will be a long while before it can see positive valuations.
Temasek bought in at a time when China's commitment to clean economy promised great opportunities for non-fossil energy. Certainly not an investment move that can be faulted. It was however, a herd instinct to follow the flavour of the month. Any investor with cash to spare can do the same. The investor that makes the difference is the one who can read what's ahead before anyone else does - getting in ahead of others, and exiting before it's too late. Ultimately, it has to be on this basis that we measure Temasek. And on this score, the stuttering Chinese economy was already evident by 2010. Is that a double whammy bad gamble on China and energy or what?
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Temasek's investments in oil companies has'nt been rosy. Check out other companies I have covered : FTS Internationa l, Chesapeake, Cheniere, Orchard Energy. Venari Resources Seven energy
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