China eyes US investment firm

Chinese state agency to take 10 per cent stake in Blackstone Group.

    Blackstone's IPO will be expanded to accommodate the Chinese investment [GALLO/GETTY] 

    Schwarzman told the Reuters news agency: "To the extent that the state investment company stays below the 10 per cent threshold for governmental review ... and invests in securities that are liquid, which this security eventually will be, that's a very easy way for the state investment company to put large amounts of money to work with minimum to no controversy."
    The agreement gives China's government a stake in the increasingly popular world of private equity investment and provides Blackstone with a key alliance at a time when foreign investors are struggling to buy into China's domestic assets.
    New York-based Blackstone, which is expanding its $4bn IPO, planned for June, to $7bn to accommodate the Chinese investment, will offer shares to Beijing at a 4.5 per cent discount, with China agreeing to keep its holding for at least four years.
    "This is a very, very significant move and it symbolises that China believes in America," said Frank Holmes, chief executive of US Global Investors Inc, which invests in Asia.
    Holmes contrasted the move with the political furore that scuttled an attempt in 2005 by Chinese state-owned oil firm CNOOC to buy Unocal, the US oil producer.
    Blackstone's push
    Blackstone, which is making a big push into China to catch up with rivals, appointed Antony Leung, Hong Kong's financial secretary from 2001 to 2003, as its China chief in January.

    "The Chinese government wants to increase its access and role in the global private equity market, Blackstone wants to increase its access and role in China"

    Monte Brem,
    CEO of Leucadia Capital Partners

    The announcement of China's plans to take a stake in the private equity group comes just days before Wu Yi, the Chinese vice-premier, meets Henry Paulson, the US treasury secretary, in Washington to discuss sticking points in the second round of the two governments' "strategic economic dialogue".
    The run-up to the talks has seen a flurry of deals and government measures, including a move on Friday to widen the yuan's trading band, which analysts say could allow the currency to appreciate faster.
    "For both China and Blackstone, it's about enhancing access and developing deeper relationships," said Monte Brem, CEO of advisory firm Leucadia Capital Partners.
    "The Chinese government wants to increase its access and role in the global private equity market, Blackstone wants to increase its access and role in China."
    Chinese plans
    China said in March it was setting up a vehicle to diversify part of its $1.2 trillion of foreign exchange reserves and improve returns on its portfolio, now mainly invested in dollar bonds.
    The agency, still to be named, is headed by Lou Jiwei, a former vice-finance minister, and state media reports have said the agency could manage up to $200bn.
    Jin Renqing, China's finance minister, has said one of its models would be Singapore's state-owned Temasek Holdings, which invests in a broad range of industrial and financial assets at home and abroad, including Chinese state-owned banks.
    In recent years US buyout firms have flocked to Asia, seeking deals that tap into its booming economy and burgeoning consumer market.
    But large, long-time US buyout players in China, including Blackstone's rivals TPG Capital and Carlyle Group, have found it difficult to secure majority stakes in Chinese companies.
    In March, Carlyle settled for a minority stake in China's biggest machinery maker, Xugong Group Construction Machinery, bowing to Beijing's concern over spreading foreign influence.

    SOURCE: Agencies


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