Monday, May 21, 2007

China Spend $3 Billion To Buy Into U.S. Private Equity Firm

A new Chinese investment company charged with handling the nation's bulging reserves has agreed to invest three billion dollars in U.S. private equity company Blackstone

Financial Times reports:
Blackstone’s executives, led by founders Stephen Schwarzman and Pete Peterson, will receive up to $4.5bn from the buy-out group’s listing after a $3bn investment by the Chinese government prompted them to nearly double the size of the offering to $7.8bn.

The move will turn Blackstone’s initial public offering into the world’s second largest this year and enable its partners to cash in part of their stakes during an unprecedented boom for the private equity industry.

The hunger to share in private equity’s riches was underlined at the weekend by the Chinese government’s surprise decision to spend $3bn of its foreign exchange reserves on a stake of about 9.9 per cent in Blackstone.

In a regulatory filing on Monday, Blackstone said it would increase the size of the IPO from the planned $4bn to up to $7.8bn by selling a stake of about 10 per cent to the public and 9.9 per cent to China’s soon-to-be-formed foreign exchange agency.

Shares in the IPO, expected in the next few months, will be priced at between $29 and $31, valuing Blackstone at $33.6bn. “Our existing owners will receive $3.9bn of the proceeds . . . or approximately $4.47bn,” if, as likely, Blackstone’s advisers sold all the shares in the listing, the filing said.

The document did not reveal how much each of Blackstone’s founders and other dozen top executives would sell into the IPO. However, the buy-out group had previously said that Mr Peterson, 80, would retire at the end of 2008 and would be allowed to sell his stake in the listed vehicle immediately.

Blackstone also said in the filing that it would contribute $150m raised in the offering to the Blackstone Charitable Foundation, which is expected to give to educational, cultural, scientific and other organisations as well as to charities.

The news came as private equity executives and business and political leaders said the Chinese investment in Blackstone was more than just a financial coup for the buy-out group.

They said that the backing of a powerful Beijing agency would help Blackstone navigate China’s treacherous market for private equity deals, which have proven difficult to come by for rival buy-out groups such as Carlyle and Kohlberg Kravis Roberts.

“It is a double victory for Blackstone because you have to assume that the deal will be good for their expansion plans in China. Beijing now has a vested interest in the firm performing well,” a Hong Kong banker said.

The deal, which was clinched in just a few weeks and before the new agency had been set up, could also help the relationship between Washington and Beijing at a time of growing tensions over the level of the renminbi.

According to Mr Schwarzman, the deal signalled Beijing’s willingness to continue to invest part of its $1,200bn of foreign reserves in US assets, despite its stated policy of moving away from low-yielding US Treasuries. “From what I understand it should be, or will be, part of a trend,” he told Reuters by phone. “Blackstone is the first, but over time I would suspect there would be others.”

But the one-year exclusivity period secured by Blackstone could ensure that rival private equity groups considering a listing, such as KKR and Texas Pacific Group, may not be able to tap into Beijing’s funds.

Washington observers said the deal was unlikely to run into political opposition, particularly because Beijing had agreed to forego its voting rights.