China Development Bank Set to Buy Stake in U.S. Buyout Firm TPG Capital

Buyout firm offers China chance to develop private equity industry

The investment unit of China Development Bank Corp. (CDB) was reported on Monday to have agreed to purchase a stake in the U.S. buyout firm TPG Capital. TPG co-founder Jim Coulter attended a signing ceremony in Beijing with China Development Bank Capital Co. to mark the occasion.

CDB and TPG both declined to comment on the news. However, Bloomberg has reported that China has been working to broaden its private equity industry.

CDB, a state policy lender set up in 1994, had more than 5 trillion yuan ($770 billion) in assets as of the end of 2010. Run since 1998 by Chen Yuan, it is the only lender in China to have won a license from the cabinet for the creation of a private equity unit even as outside firms such as Morgan Stanley are raising yuan funds to be invested locally.

CDB Capital was established in August 2009 with 35 billion yuan of registered capital, with the intent to focus on private equity, direct corporate investment and advisory services. CDB Capital’s funds include the China-Africa Development Fund, currently valued at $1 billion.

 “CDB’s strong client base and government backing may help TPG get more mega deals in China. On the other hand, it’s a quick way for CDB to benefit from a diversified overseas portfolio,” said Sheng Nan, a Shanghai-based analyst at UOB Kayhian Investment Co., in the Bloomberg report.

TPG manages approximately $48 billion and has sunk $8.1 billion into Asian investments since the beginning of 2008.

In a separate announcement, CDB Capital said that it also will buy 1.92 billion shares of New Capital International Investment Ltd., a companyincorporated in the Cayman Islands and listed on the Stock Exchange of Hong Kong

CDB Capital is not the only institution to diversify outside China. China Investment Corp., which is a $300 billion sovereign wealth fund, is the owner of stakes in both Blackstone Group LP, a rival to TPG, and Morgan Stanley. The fund acquired these positions after it began to invest in the U.S. after the credit crisis hit in 2007.

For more news on China, read 'Swiss Bank Julius Baer Gets Green Light for China Fund' at AdvisorOne.com.

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