Business

Tuesday July 21, 2009

China sovereign fund to buy CITIC Capital stake


HONG KONG: China Investment Corp (CIC), the country’s US$200bil sovereign wealth fund, has agreed to invest HK$2bil (US$258.1mil) for a 40% stake in private equity fund manager CITIC Capital, sources said yesterday.

CITIC Capital, backed by the powerful CITIC Group, which is directly led by the cabinet, would issue new shares only to CIC, and the deal could help the fund manager boost its capital base to HK$5bil from the current HK$3bil, they said.

The alliance with CITIC Capital is CIC’s first investment in a Chinese asset manager. It will give the young sovereign fund, whose main focus is to invest abroad, a channel to tap domestic deal opportunities.

CIC’s investment was only for the fund management firm and would have no impact on several funds worth about US$2bil in total now managed by CITIC Capital, said the sources.

Many institutional investors, also known as “limited partners” (LPs) of CITIC Capital’s China-focused buyout and real estate funds, welcomed the deal, they said.

“LPs definitely welcome the deal, given CIC’s government background, which can help CITIC Capital to do domestic deals easier in the future,” said one source.

The sources said the deal was expected to be announced this week or next. Both CIC and CITIC Capital declined to comment.

Beijing’s influential Caijing magazine first reported the alliance between CITIC Capital and CIC at the weekend.

Reuters reported in February that CIC was in talks to buy up to half of CITIC Capital.

Steel-to-property conglomerate CITIC Pacific and CITIC International Financial Holdings Ltd, whose parents are the same CITIC Group, each now hold 50% of CITIC Capital.

After CIC’s investment, the shareholding of CITIC Pacific and CITIC International Financial, would drop to 30% each as they decided not to buy new shares in CITIC Capital this time, the sources said.

CIC would appoint new directors on CITIC Capital’s board but CIC representatives would not interfere in CITIC Capital’s decisions in regard to future deals, said the sources.

CITIC Pacific stunned markets in October when it warned of a potential US$2bil loss, which later rose to nearly HK$19bil, from wrongway bets on the Australian dollar.

CITIC Capital is well known for its expertise to restructure big Chinese state-owned enterprises including Harbin Pharmaceutical Group, one of China’s biggest drug firms, and Fushun Excavator Co Ltd, the country’s largest manufacturer of hydraulic crawler cranes. — Reuters

Foreign funds such as Carlyle have complained for a long time about the difficulties in securing approvals to buy state-owned firms in the world’s fastest growing major economy.

CITIC Capital was in talks with China’s national pension fund to launch a yuan-denominated private equity fund, Reuters reported in August. — Reuters


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