CIC raises stake in Blackstone to 12.5%

By Xin Zhiming (China Daily)
Updated: 2008-10-18 09:04

China Investment Corporation (CIC), the country's $200 billion sovereign wealth fund, has raised its stake in US investment group Blackstone LP to more than 10 percent - still short of the 12.5 percent limit recently agreed between the two parties, a source close to the deal said.

"The investment exceeds 10 percent," the source told China Daily, without revealing when the investment portion might reach the 12.5 percent limit.

Analysts said the fundamentals of Blackstone might justify CIC's additional investment, although the prospects of the US financial market remain murky.

According to a filing of Blackstone with US regulators, a revised agreement was reached on Thursday between the firm and CIC unit Beijing Wonderful Investments Ltd to raise the limit of CIC's holding of Blackstone stake up to 12.5 percent from the previously agreed 9.99 percent.

There was no official comment from CIC on its additional share purchase.

CIC paid $3 billion to acquire 101 million shares before Blackstone's June 2007 initial public offering, committing to hold those non-voting common units for four years. Its investment has lost more than two-thirds of its value as Blackstone shares slumped amid global financial turmoil since last year.

When CIC purchased its Blackstone stake last year, the shares were valued at $31 apiece. They are now worth about $9.

The purchase of the additional Blackstone stake does not require regulatory approval and can be carried out through the open market and be resold freely.

New York-based Blackstone Group LP, manager of the world's largest buyout funds, still has sound fundamentals, the source said.

"Investors may have over-reacted amid the bloody market atmosphere and Blackstone may be undervalued given its still good business performance."

Assets under the management of Blackstone increased by 26 percent year-on-year in 2007, when its financial consulting business expanded by 42 percent year-on-year. Its income from fund and asset management also increased by 50 percent last year.

Different from many US financial institutions that have had to be bailed out by the government, Blackstone's liquidity and asset quality remain sound, the source said, suggesting the CIC investment is aimed at long-term interest.