The Russia-China Investment Fund (RDIF), a sovereign fund formed by the Russian Direct Investment Fund with the China Investment Corporation, has announced its first investment, awaiting regulatory approval.
The Russia-China fund was formed this summer with an initial seed amount of $1bn from each side.
The goal is to double the total size of the fund to $4bn.
About 70% of the assets will be invested in Russian companies, with the remainder in Chinese enterprises.
For its first allocation, the fund has reached a preliminary agreement to become a shareholder in Russia Forest Products, the country’s second-largest producer of wood and wood products. Its investment is set to help the firm ‘move up the value chain’ from producing raw logs to value-added products.
The size of the transaction may be up to $200m, which would make the new investor the largest single shareholder in the company.
Kirill Dmitriev, CEO at RDIF, said: “This transaction ideally fulfills the mission of the Russia-China Investment Fund: we expect it to generate strong returns as well as to advance bilateral economic co-operation between Russia and China.
“It will lead to the creation of new jobs and implementation of modern technologies in the Russian forestry sector.”
The RDIF was formed last April to invest in leading Russian companies in high-growth sectors together with foreign investors. It is a full subsidiary of Russia’s state bank Vnesheconombank, and as such offers security to international investors.
This summer, the fund formed a consortium with BlackRock Investment Management, Templeton Asset Management and the Goldman Sachs European Special Situations Group to help Russian companies through the pre-IPO process.
Its goal is to invest in Russian companies with an annual turnover of $500m or more that plan to place their equity on the Russian stock exchange in the next six to 18 months.
Following the formation of the group, RDIF also signed a co-financing agreement with the Kuwait Investment Authority (KIA) to make joint investments in Russian companies at the pre-IPO stage.