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Private Equity in China

news

Blackstone Group has completed its first foray into China through a joint venture with China National Chemical Corp. Blackstone's $600 million investment bought a 20% stake in China Bluestar, the new entity that will mainly focus on chemical production. Forbes/Thomson Financial News (10/7) 

National PE funds:

source:  WSJ , pool cover

China's national social-security fund has been cleared to invest as much as 10% of its assets in domestic private-equity funds, a move that frees up around $7.5 billion for deals.

The huge pool of capital opened to the domestic private-equity industry will encourage more Chinese deal makers to turn to onshore, yuan-denominated funds. Global firms like Carlyle Group and TPG LLC that have dominated the private-equity scene in China will face tougher competition for deals because domestic-currency funds face fewer regulatory hurdles.

As the competition for onshore deals grows from local players, global private-equity firms are trying to re-position themselves to team up with Chinese companies as they look to go abroad. Many hope to add their financial and political clout in the U.S. and Western Europe to bids by Chinese companies doing their first major overseas acquisitions. Still, doing those deal isn't easy. Bain Capital LLC's failed joint bid with Huawei Technologies Co. for 3Com Corp. that collapsed on concerns about 3Com's government-security software was the latest such attempt.

The National Council for Social Security Fund said on its Web site that it will be able to invest in yuan-denominated, government-backed industrial investment funds and market-based private-equity funds, confirming a Wall Street Journal report last month. The social-security fund doesn't yet have clearance to invest in foreign-currency funds.

Prominent global investors like the California Public Employees' Retirement System typically allocate around 10% of their portfolios to private equity.

China's social-security fund, with nearly $75 billion in assets at the end of last year, has tapped two funds for its first investments since receiving the approval. It picked new yuan-denominated funds being raised by China-focused private-equity firms CDH Investments and Hony Capital, according to people familiar with the situation.

CDH and Hony each is looking to raise as much as five billion yuan ($720 million) from domestic limited partners and expects to close the first phases of those funds in the coming weeks or months, the people said. The two private-equity firms have strong track records doing China deals with funds raised from limited partners offshore.

Previously, the national social-security fund could invest in private-equity funds but was required to seek special approval from the State Council, China's cabinet, on a case-by-case basis.

Because the private-equity industry in China is dominated by foreign firms, the national government tends to be cautious about allowing large buyouts. Deals in China have rarely risen above the $100 million to $200 million range and typically involve taking minority stakes. Still, many of those deals have proved to be very profitable.

In a sign that deals are proceeding, Citic Capital Holdings Ltd. said Thursday that it closed a deal to invest in Chinese crane manufacturer Fushun Excavator Corp. The terms weren't disclosed. Fushun Excavator exports 60% of its cranes. Citic Capital says it intends to pursue an initial public offering for Fushun Excavator in either mainland China or Hong Kong but doesn't have a time frame for the offering.

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