Blackstone deal eyes better returns

Updated: 2007-05-22 16:27

China's embryonic State investment company is taking a $3 billion stake in the second largest American private equity firm, and an insider said that Beijing had expected to improve returns on foreign investments.

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The deal gives the yet-to-be-set-up company a stake in the profitable private equity boom now sweeping the world market.

And, a day after buying the stake in the New York-based Blackstone Group, China sought Monday to offer assurances that it was looking only to improve its returns on overseas investments - not take control of foreign companies, which some believe would aggravate political tension.

Beijing announced in March that it was setting up an investment arm to channel part of its $1.2 trillion foreign exchange reserves to improve returns on its portfolio, now mainly invested in dollar bonds.

Wang Jianxi, chairman of China Jianyin Investment Co Ltd and one of the top management team involved in the deal with the Blackstone, said: "China's State investment company will focus on portfolio investment, and it may buy any normative and mature investment products in the market, including alternative investment."

Wang added that a detailed investment policy will only be drawn up after the company is formally established within the year of 2007.

The Blackstone investment stirred memories of the unsuccessful bid two years ago by CNOOOC, a Chinese state-owned oil company, to acquire Unocal, an American oil company; Congressional opposition blocked that transaction.

An report from the New York Times on Monday said that some people in the US are wary of any pattern of high-profile Chinese acquisitions that might resemble Japanese investors' acquisitions in the 1980s of landmarks like Rockefeller Center and the Pebble Beach golf course.

Wang went out of his way to try to allay those fears, saying that the new investment company would be more interested in investments paralleling funds that buy shares in most or all of the stocks in indexes that track the overall performance of overseas stock markets.

"In the future, yes, we surely think we will invest in the index funds," he said.

The Chinese government is setting up the state investment company to diversify the country's overseas investments beyond US Treasury securities and other bonds. But the main goal is to accumulate a broad portfolio of small stakes in lots of companies, instead of purchasing controlling stakes in a few companies, Wang said.

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 transaction will transfer less than 10 percent of Blackstone's equity to the Chinese government and is a nonvoting stake, Wang said.

Blackstone said Monday that it planned to raise as much as $7.8 billion from selling stakes to the public and to China, Reuters reported from New York. The initial public offering would rank among the top 10 US IPOs, and be the largest by a private equity firm.

Wang is the chairman of China Jianyin, an operating unit of the Central Huijin Investment, a Chinese government agency that handles a broad array of transactions between Chinese state-owned companies and foreign investors, including the sale of Chinese banks' problem loans.

Michael Smith, the chief executive of HSBC's Asian operations, said during an interview that few companies were likely to oppose the sale of minority stakes to the Chinese government.

"Too many shareholders just think for tomorrow, so in many ways they bring some stability," he said.

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