China CIC to pay dividends, not interest - paper

BEIJING Aug 22 (Reuters) - China Investment Corp, the country's $200 billion sovereign wealth fund, has agreed with the Finance Ministry to change the way it pays its funding costs, local media reported on Saturday.

To fund CIC, the Finance Ministry issued 1.55 trillion yuan ($226.9 billion) worth of special treasury bonds at an annual rate of 4.3 percent in late 2007 to buy foreign exchange from the central bank.

This means CIC has to pay about 66.65 billion yuan ($9.76 billion) of interest each year. But due to heavy paper losses from two high-profile overseas investments before the financial crisis, CIC has been postponing the interest payment to its state shareholder.

CIC has reached a consensus with the Finance Ministry to treat the $200 billion as its asset rather than debt, and the firm will pay dividends to the state instead of interest, just like other top state-owned enterprises (SOE), The Economic Observer cited a CIC source as saying.

Chinas State Asset Supervision and Administration Commission (SASAC) from last month started collecting dividends from the 136 central SOEs it oversees, the paper said.

SOEs in tobacco, oil, chemical and power industries should pay 10 percent of their capital returns to the state while those in steel, transportation and electronics businesses pay five percent.

But Beijing has yet to decide how much financial central state firms, into which category CIC falls, should pay, the paper said.

Based on an assumption of 5 percent, CIC will pay its state shareholder 68.3 billion yuan ($10 billion), the CIC source told the paper.

Despite its overseas losses, CIC reported an overall 6.8 percent return on its capital early this month, thanks to hefty gains its domestic investment arm made in listed big state banks.

CIC's two highest-profile investments were a combined $8.6 billion in U.S. private equity company Blackstone Group (BX.N) and Wall Street bank Morgan Stanley (MS.N).

($=6.83 yuan)

(Reporting by Eadie Chen and Chen Aizhu; Editing by Keiron Henderson)