CITIC Launching Buyout Fund with Pension Body

BEIJING (Reuters) – CITIC Capital Holdings Ltd, an investment arm of China’s largest financial conglomerate, plans to launch a buy-out fund with China’s national pension fund, as well as a venture capital fund with China Development Bank (CDB), its chief executive said on Friday.

“We are seeking cooperation with the national social security fund (NSSF), to launch a buy-out fund, which will be our second buy-out fund,” Zhang Yichen told Reuters on the sidelines of China’s annual legislative meeting.

He declined to give a size for the new buy-out fund. In 2007, CITIC capital, controlled by CITIC group, raised $425 million in a China-focused dollar-denominated private equity fund.

China is encouraging private equity investment, seeing it as a new source of corporate funding as banks become increasingly cautious in lending to the private sector, while the country’s IPO market has frozen amid the global economic crisis.

NSSF, which managed 516.2 billion yuan ($75.5 billion) as of the end of 2007, has invested 2 billion yuan each in private equity funds launched by CDH Investments and Hony Capital, after winning government approval last June to put as much as 10 percent of assets in such funds.

“We’re looking forward to cooperating with the government, which holds a lot of cash and resources,” Zhang said, adding that CITIC Capital was competing with other private equity firms to win NSSF’s favour.

Sources with direct knowledge of the matter told Reuters earlier that CITIC Capital’s parent, CITIC Group, and NSSF, may each invest 1 billion yuan in the planned new fund.

Hong Kong-based CITIC Capital has made some high-profile private equity investment in the past. Its China portfolio includes Harbin Pharmaceutical Group, one of China’s biggest drugs firms, and Fushun Excavator Co Ltd, the country’s largest manufacturer of hydraulic crawler cranes.

CITIC Capital also plans to launch a venture capital fund with CDB, which is turning itself into a commercial lender from a policy bank that lends in line with government directives, Zhang said.

Zhang declined to comment on a possible ownership change in CITIC Capital.

China Investment Corp (CIC), a $200 billion sovereign wealth fund, is in talks to buy up to half of CITIC Capital, two sources close to the situation told Reuters last month.

CITIC Capital, which currently manages over $1.6 billion of assets, is half owned by steel-to-property conglomerate CITIC Pacific (0267.HK), while CITIC International Financial Holdings Ltd holds the other 50 percent stake.

($1=6.839 Yuan)

By George Chen and Zhang Shengnan

(Additional reporting by Samuel Shen; Writing by Lucy Hornby; Editing by Jacqueline Wong)