Carlyle Holds First Close on RMB Fund
The yuan-denominated vehicle is targeting RMB 5 billion, and follows reform in China easing foreign PE’s entry into the country.
July 30, 2010
When China softened its stance on foreign investors in March, it was expected that the bigger names in private equity move quickly to raise onshore vehicles. The Carlyle Group, with a first close of RMB 2.4 billion ($330 million) on its new yuan-denominated fund, is among the first few firms to do so, as it looks to ultimately raise a total of RMB 5 billion (approximately $740 million).
The new vehicle will invest alongside Carlyle Asia Partners, which already oversees three US dollar-denominated funds. The RMB fund, however, comes with entitlements offering "preferential policies" from the Beijing Municipal Government.
The firm established a joint venture with Beijing state-owned-entity Capital Operation and Management Center (BSCOMC), designed to help manage the investments and serve as advisor to the fund. Carlyle will hold an 80% stake in the JV, Carlyle (Beijing) Investment Management Co., Ltd. BSCOMC, meanwhile, is also an investor in the RMB fund, alongside other private companies, individuals, and SOEs, including the Beijing Equity Investment Development Fund.
The new fund follows regulatory changes in March that cleared the path for select sponsors to raise onshore RMB funds. The new laws allow certain private equity firms to operate within the country as limited liability partners through partnerships with Chinese SOEs.
The Blackstone Group, for instance, is among those also raising a yuan-denominated fund.
To be sure, Carlyle has already been active in the country. The firm, through offshore vehicles, has already poured more than $3 billion into Chinese companies, spread out over 50 different investments.
The firm’s aborted investment in Xugong Group Construction Machinery Co., however, highlighted the difficulty foreign investors have faced in China in past years. Carlyle, in 2005, agreed to acquire 85% of the industrial company for $375 million. The deal stalled after China’s Ministry of Commerce blocked the transaction. Carlyle made several concessions over the next three years, and was still denied after cutting its proposed stake down to 45 percent. The firm finally abandoned the deal in 2008.
In a statement, Mr. JI Lin, the executive vice mayor of the Beijing Municipal Government, spoke to the municipality’s interest in attracting foreign investment, citing that firms such as Carlyle will bolster the region’s efforts in growing the region's businesses to “structurally transform the local industries.”
Carlyle is also reportedly raising a separate RMB fund, which first garnered headlines earlier this year. In February, a partnership was announced between Carlyle and The Fosun Group of Shanghai. Unlike the firm's RMB 5 billion-targeted vehicle, the Fosun partnership will target high growth companies, and invest alongside Carlyle Asia Growth Partners' team.
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