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State investment firm to take stake in PE firm

By Zhang Ran (China Daily)
Updated: 2007-05-22 09:09

China's embryonic State investment company is taking a $3 billion stake in the second- largest US private equity firm, the two said in a joint statement released yesterday.

The deal gives the yet-to-be-set-up company a significant stake in the private equity boom sweeping the world and seals a key alliance for The Blackstone Group at a time when foreign investors are keen to gain support from Beijing to buy domestic assets.

The Chinese investment company is taking a non-voting stake of just under 10 percent in New York-based Blackstone, which is expanding its planned $4 billion IPO to $7 billion to accommodate the Chinese investment.

The Chinese firm will get the shares in the Blackstone IPO at a 4.5 percent discount and has agreed to hold them for at least four years.

China said in March it was setting up a vehicle to channel part of its $1.2 trillion foreign exchange reserves to improve returns on its portfolio, now mainly invested in dollar bonds.

"We wanted to seize this opportunity as it is the first IPO launched by a private equity firm in the United States," Wang Jianxi, chairman of China Jianyin Investment Co Ltd and one of the top management team involved in the deal, told China Daily yesterday.

Wang said: "The State investment company will focus on portfolio investment, and it may buy any normative and mature investment products in the market, including alternative investment."

He added that a detailed investment policy will only be drawn up after the company is formally established within the year.

He said the firm is learning from the investment experience and model of fund management bodies including the State Social Security Fund, China's largest pension fund.

The new company could manage up to $200 billion, media reports have said. Finance Minister Jin Renqing 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.

"From what I understand it should be, or will be, part of a trend," Blackstone co-founder Stephen Schwarzman said of China's investment. "Blackstone is the first, but over time, I suspect there would be others," he told Reuters.

Blackstone has been moving aggressively in recent months to find investments in China; and is trying to catch up with the Carlyle Group, which has a large operation in the country.

In January, Blackstone hired Antony Leung, Hong Kong's former financial secretary, to run the group's business on the Chinese mainland, Hong Kong and Taiwan. It is expected to open an office in Beijing soon.

"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," Brem said.