Temasek Holdings is investing US$500 million ($693 million) in an offering by Chesapeake Energy Corp., the third-largest U.S. natural-gas producer.

The Singapore state-owned investment company, which manages about $172 billion of holdings, purchased preferred shares of Chesapeake with a 5.75% cumulative dividend and a conversion price of US$27 per common share, it said in an e-mailed statement today.

 

“We remain confident of the growth potential of the energy sector,” Temasek said. Hopu Investment Management Co., a private equity fund backed by Temasek, is investing US$100 million on similar terms, it said.

 

Chesapeake is raising as much as US$5 billion to reduce debt and achieve investment-grade credit ratings. The Oklahoma City- based company said it will sell preferred stock and a stake in a subsidiary to cut debt by as much as US$3.5 billion and increase investment in drilling for oil and gas liquids.

 

Natural gas for June delivery has declined by about 25% this year in New York amid lower demand and a glut of gas from shale rock formations, according to Bloomberg data. Gas traded at US$4.17 per million British thermal units on the New York Mercantile Exchange.

 

As part of its fundraising, Chesapeake said it’s planning to sell as much as a 20% stake in its Marcellus Shale subsidiary in the next three to 12 months.

 

Chesapeake closed at US$23.10 yesterday on New York Stock Exchange composite trading. The shares, which have 18 buy ratings from analysts, 11 holds and 2 sells, have dropped 10.7% this year.