China's forex to invest in Blackstone

Updated: 2007-06-23 00:40

The U.S. Blackstone Group would receive the 3 billion U.S. dollars to be invested by China's state foreign exchange investment company "shortly after its public offering," the Chinese company said Friday.

According to the deal struck between the two sides, the Chinese investment company must hold its shares for at least four years.

The state forex firm agreed to buy Blackstone shares at a 4.5 percent discount on the IPO price -- set at 31 dollars a piece, a source with the soon-to-be-established Chinese firm said Friday.

Blackstone said it will use the funds raised in the IPO to buy back some equities from its old shareholders, repay short-term loans, and invest in current as well as new businesses.

Although the deal has been widely welcomed by Wall Street, some U.S. lawmakers, in a throwback to the Cold War, urged the U.S. Security and Exchange Commission (SEC), the Department of Treasury and the Department of Homeland Security to delay Blackstone's IPO due to what they called national security reasons.

In a letter to the SEC and the other two departments, Democratic senator Jim Webb said "in making this request, I express my concern regarding the enormity of this public offering and the large investment from a foreign government."

However, the SEC ignored his proposal and approved Blackstone's IPO, saying an IPO may be delayed only if a company had issued "material misstatements or omissions."

As one of the core investors, the state forex investment company expects to gain profits from the private equity firm's investments and from a rise in share prices, Wang Jianxi, Chairman of the China Jianyin Investment Limited (China Jianyin), said earlier in May.

China Jianyin, a state-owned investment company, will be merged with the new state forex investment company.

He noted the forex investment company, which is expected to go into operation this year, may also entrust its forex capital to other world leading asset management firms to seek higher earnings.

By the end of March, China's foreign exchange reserves had jumped 37 percent from a year earlier to exceed 1.2 trillion U.S. dollars, which are mainly invested in low-yielding U.S. dollar bonds.

China's top legislature is to discuss an issuance of special treasury bonds by the Ministry of Finance for the country's foreign exchange investment at a six-day session beginning on June 24.

Apart from its role in reducing excessive liquidity, the bond issuance will also help to buy foreign reserves from the central bank to finance the investment of the state foreign exchange investment company, said Li Yang, director of the finance research institute of the Chinese Academy of Social Sciences.

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