First Eastern Raising Nearly $900 Million

SHANGHAI (Reuters) – First Eastern Investment Group, a Hong Kong-based private equity firm, aims to raise 6 billion yuan ($878 million) for yuan-denominated funds over the next 12 months to expand its investments in China.

First Eastern also said in a statement it was the first international private equity firm to set up a Shanghai-based subsidiary.

The announcement came after Blackstone Group LP (BX.N), the world’s biggest private equity firm, unveiled plans on Friday to launch a 5 billion yuan local-currency fund in partnership with the Shanghai government. Shanghai competes with other Chinese cities including Tianjin and Beijing in attracting foreign private equity investment as it seeks to foster corporate governance and steps up efforts to become an international financial hub by 2020.

“Capital supply from U.S. dollar investors is shrinking, while in China, there has been increasing demand for managers of yuan funds due to ample liquidity,” said Alex Wang, Shanghai-based partner at U.S. law firm Paul, Hastings, Janofsky & Walker LLP.

“Local incorporation can help foreign firms bypass many regulatory hurdles when exiting from their private equity investments, and fully benefit from China’s booming stock market.”

China in June lifted a nine-month ban on initial public offerings and will this year launch a Nasdaq-style second board, expanding exit channels for private equity and venture capital investors in a stock market that has jumped more than 60 percent this year.

“Through our local expertise and our expanding global network, I am confident we can add substantial value to aspiring Chinese companies both in China and on international markets,” First Eastern Chairman Victor Chu, an influential businessman in Hong Kong, said in the statement.

First Eastern, founded by Chu two decades ago, invested in more than 100 projects in China covering infrastructure projects, light industries, real estate development and financial services.

First Eastern has strong ties with governments in China and the Middle East, where it once aimed to help the People’s Daily, the mouthpiece of China’s Communist Party, launch an Arabic edition newspaper, industry sources said.

The Shanghai unit, First Eastern (Shanghai) Investment Management Ltd, will launch yuan-denominated funds totalling 6 billion yuan over the next 12 months to invest in regional developments and local environmental protection projects.

The company said it had already been in discussion with local governments on cooperative projects that would benefit from China’s 4 trillion yuan economic stimulus package.

Last Friday, Blackstone and the Shanghai government announced plans to create a 5 billion yuan fund that would primarily invest in Shanghai and neighbouring areas.

The moves signify China’s ambition to develop its local private equity industry, as the country needs global expertise to improve corporate governance and develop the country’s fledgling capital markets. ($1=6.834 Yuan)

By Samuel Shen and Edmund Klamann