CICC and SIG Form $2.9 Billion Private Equity Joint Venture

SHANGHAI (Reuters) – China International Capital Corp (CICC), the country’s biggest investment bank, and government-owned Shanghai International Group (SIG) are setting up a private equity venture that will manage up to 20 billion yuan ($2.9 billion), a senior CICC executive said on Wednesday.

The new venture, to be named Golden Partners Capital, is aiming to raise 8 billion yuan for its first fund, which will mainly invest in financial institutions such as fund management firms, brokerages and banks, Bei Duoguang, CICC’s investment banking head told Reuters.

“Generally speaking, the economic situation is not so good, so fund raising is more difficult than we expected,” said Bei, who will become president of the venture.

CICC, partly owned by Morgan Stanley (MS.N) and financial conglomerate SIG, will each own half of the Shanghai-based venture, he said.

Private equity firms typically invest in unlisted companies in the hopes of selling them off at a profit after increasing the value of these companies.

But private equity firms are now suffering from a deepening global economic crisis, tight credit and slumping stock markets.

China’s government, however, is encouraging development of the private equity industry, seeing it as a new source of capital to aid the nation’s slowing economy as banks become increasingly cautious to lending and the IPO market has almost frozen.

Beijing has granted licences to about a dozen local brokerages, including CICC and CITIC Securities (600030.SS) to start private equity businesses.

Golden Partners has recently obtained approval from the National Development & Reform Commission, China’s top planning agency, and is in the registration process, Bei said.

CICC — 34.3 percent owned by Morgan Stanley and headed by Levin Zhu, son of former Chinese premier Zhu Rongji — is the underwriter of some of China’s biggest IPOs, including the listings of China Telecom (0728.HK), Industrial and Commercial Bank of China (1398.HK) and Baoshan Iron and Steel Co Ltd (600019.SS).

SIG, controlled by the Shanghai government, owns stakes in dozens of financial institutions including Shanghai Pudong Development Bank (600000.SS), Guotai Junan Securities Co, Hua An Fund Management Co and China International Fund Management Co Ltd. (US$1=6.83 Yuan)

By Samuel Shen
(Reporting by Samuel Shen, Editing by Jacqueline Wong)