Chinese to enter private toll equity/infrastructure market

Link to article here. First, the Chinese join forces with Walmart to expand the port in Larazo Cardenas, Mexico to facilitate the transport of its cheap goods into the U.S., then it gets a share in the tracking technology for cargo for the Trans Texas Corridor trade route (including the tracking of unintended consequences), now they’re buying up shares in the actual private equity/private toll infrastructure market that the Spanish believe is the new El Dorado paved with gold (which translates into fleecing the American taxpayer to drive on roads we’ve already built and paid for).

Beijing to buy Blackstone stake for $3bn

By Francesco Guerrera in New York
Financial Times
May 20, 2007

The Chinese government is to use $3bn of its vast foreign exchange reserves to buy a 9.9 per cent stake in Blackstone, the US buy-out fund, in an unprecedented move that underlines Beijing’s desire to tap into the private equity boom.The investment will coincide with Blackstone’s landmark $40bn stock market listing, expected in the next few months, and will allow the private equity group to nearly double its original target of raising $4bn.Stephen Schwarzman, Blackstone’s chief executive, hailed the deal – the first time Beijing has invested its foreign reserve in a commercial transaction – as an “historic event that changes the paradigm in global capital flows”.

Under the terms of the deal, which is believed to have been agreed in just a few weeks, the Chinese government has taken the unusual step of giving up its voting rights associated with the stake in Blackstone.

The move appears aimed at defusing any US political opposition to the deal at a time of tension between Washington and Beijing over the renminbi.

The US Treasury pointed out that it had decided last week to allow the Chinese to invest more in foreign stocks and was working to create “opportunities for US financial services firms like this”.

The announcement comes just before Tuesday’s visit to the US by Wu Yi, China’s vice-premier, to discuss bilateral trade relations.

The investment – announced on Sunday – will come through a new Chinese agency charged with managing part of the country’s $1,200bn in foreign reserves.

The price of the stake to be sold to Beijing will be at a slight discount to the one paid by investors in the initial public offering. Beijing has also agreed to keep the stake for at least four years.

It is understood that China’s foreign reserve agency has agreed not to invest in rival private equity groups for 12 months. A number of Blackstone’s rivals, including Kohlberg Kravis Roberts, Texas Pacific Group and Apollo are exploring listings or private placings.

China’s decision to buy a stake in Blackstone’s IPO rather than in one of its buy-out funds, which are more volatile and risky, is a sign of Beijing’s cautious approach to private equity.

The Chinese government has been looking to diversify its foreign exchanges reserves away from low-yielding US Treasuries.

However, buying into Blackstone’s listed entity may deprive the Chinese government of some of the large returns earned by its buy-out funds.

In its prospectus, Blackstone warned that its priority was to return cash to the private investors in its funds, rather than to pay dividends to shareholders.

Over the past two years, private equity has been one of the best performing asset classes, as private equity funds have exploited favourable debt market conditions to buy ever-larger companies.

However, there are growing fears the private equity cycle may be nearing its peak, as takeover prices and debt levels reach record levels.