Blackstone, KKR in talks on new wave of China funds

Tue Jul 17, 2012 9:23pm IST



* China authorities hold talks in HK with foreign funds

* Funds registered in Qianhai can raise yuan from HK investors

* Plans to put foreign funds on more equal footing with locals

By Stephen Aldred

HONG KONG, July 17 (Reuters) - Global private equity funds, including Blackstone Group L.P. and KKR, have held early talks with Chinese authorities on a new wave of renminbi funds which could dramatically improve their chances to win deals in China, an executive involved in the discussions said.

China is experimenting with service sector reforms in the new business zone, Shenzhen-Qianhai, offering freer currency movements and Hong Kong professional standards, and authorities held talks on Tuesday in Hong Kong to solicit opinions from foreign funds.

As part of the experiment, any private equity firm registered in Shenzhen-Qianhai will be allowed to raise a yuan fund from Hong Kong investors, said John Zhao, CEO of leading China fund Hony Capital, which has been appointed to bring leading foreign funds into Qianhai.

The plan is also for foreign funds in Qianhai to ultimately be able to complete deals without approval from China's Ministry of Commerce (MOFCOM), which would dramatically accelerate their investment in the country.

Despite setting up yuan funds in China, firms like Blackstone, Carlyle Group and TPG Capital can still face long waits for official approval. That gives local funds a competitive advantage, as companies seeking investors usually prefer not to wait.

Zhao confirmed that Hony, which manages foreign and local money and invests in China and overseas, plans to be among the first funds to operate in the zone.

"The very first new thing I would try is to raise our next RMB fund in Hong Kong, and invest it in China," said Zhao.

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