South Korean Fund, KKR Team Up to Buy Chevron Pipeline Stake

Chevron Chief Executive Officer John Watson
Chevron Chief Executive Officer John Watson, seen here, has been curtailing the company’s involvement in lower-profit businesses such as crude refining and fuel-shipping to focus on discovering and pumping oil and gas. Photographer: Alexander Zemlianichenko Jr/Bloomberg

National Pension Service, South Korea’s biggest state fund, has bought Chevron Corp.’s stake in Colonial Pipeline Co. in partnership with Kohlberg Kravis Roberts & Co. to diversify its investment portfolio.

The South Korean fund has purchased a 23.44 percent stake in the operator of the largest pipeline linking U.S. Gulf Coast refiners and East Coast markets, National Pension said in an e-mailed statement today, without disclosing the transaction value.

“The investment is part of our efforts to diversify globally to ensure stable long-term returns, and it would be an important opportunity to expand investments in energy-related assets,” according to the statement.

National Pension was picked as a preferred bidder to acquire the stake for about 1 trillion won ($890 million), the Korea Economic Daily said on Aug. 23, citing an unidentified official at the fund. Kim Ha Young, a spokesman at National Pension, declined today to comment on the value.

The fund supplied most of the capital for the purchase, said two people familiar with the deal, who asked not to be identified because the terms are confidential. KKR will manage the asset on behalf of the South Korean fund, the people said.

Peter Mckillop, a KKR spokesman based in New York, declined to comment on the purchase and management of the stake. National Pension is unable to comment further on the deal, the fund said in a separate e-mail.

“Investment in energy-related infrastructure seems sensible because it’s less risky compared with direct investment in natural resources where there’s fiercer competition amid the global race for resources,” said Kim Hwa Nyeon, a Seoul-based research fellow at Samsung Economic Research Institute covering oil and other raw materials.

Diversifying Portfolio

The state fund, which had 303 trillion won ($270 billion) in assets as of August, is investing in overseas stocks and real estate from Australia to the U.K. to diversify from domestic fixed-income holdings. National Pension plans to boost its overseas investments to at least 20 percent of assets by 2015 from about 12 percent now.

National Pension’s overseas investments include a shopping mall near Paris, Berlin’s Sony Center, London’s Gatwick Airport, a office building in Sydney, and HSBC Holdings Plc’s London headquarters.

The fund is overseen by the Ministry of Health & Welfare and covers private-sector employees and the self-employed. It forecasts increasing assets to 488 trillion won by 2015.

Oil Pipeline

Colonial Pipeline’s 5,519-mile (8,880-kilometer) system moves gasoline and other fuels from refineries along the Gulf to markets including Washington and New York City. Other Colonial Pipeline shareholders include subsidiaries of ConocoPhillips, Royal Dutch Shell Plc, Koch Industries Inc. and Industry Funds Management Pty Ltd.

Chevron Chief Executive Officer John Watson has been curtailing the company’s involvement in lower-profit businesses such as crude refining and fuel-shipping to focus on discovering and pumping oil and gas. Chevron announced plans in March to quit refining in Europe and to cut thousands of jobs.

South Korean funds are investing in overseas energy assets as Asia’s fourth-largest crude importer competes for natural resources with China and India. Korea Investment Corp., a $35 billion fund, agreed in June to invest $200 million in Chesapeake Energy Corp., the third-largest U.S. gas producer.

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