* Blackstone, Carlyle, DT Capital approved
* QFLP investors still face regulatory hurdles-analyst
* Government prefers funds co-invested by Chinese companies
* QFLP will expand to Beijing, Tianjin
(Adds analyst quote, background)
By Samuel Shen, David Lin, Kazunori Takada
SHANGHAI, May 6 Shanghai is reviewing a second
batch of applicants for its pilot scheme to let foreign
investors invest in yuan-denominated private equity funds in
China for the first time, after approving Blackstone ,
Carlyle Group and DT Capital Partners, sources said on
Under the new Qualified Foreign Limited Partners (QFLP)
programme, foreign private equity firms will be allowed to
launch yuan funds in China using overseas capital.
In addition to major buyout funds, the Shanghai government
hopes to award QFLP status to other types of foreign investors,
such as venture capital funds, with a preference to those
co-invested by Chinese companies, said the two sources with
direct knowledge of the matter. They declined to be identified
because they are not allowed to speak to the media.
"The government is hoping that foreign capital and expertise
can boost China's nascent private equity industry and aid
economic restructuring," said Poddy Feng, analyst at consultancy
ChinaVenture in Beijing.
"But to the disappointment of many, QFLP investors will
still be treated as foreign investors, who are subject to
numerous restrictions when it comes to investing in Chinese
The first batch of QFLP investors was granted approval in
late March and the city government is now working out the
procedures so the companies can start raising money overseas.
More than 50 foreign private equity firms, including
Blackstone, Carlyle and TPG have set up subsidiaries in
Shanghai, where the government is encouraging them to launch
yuan-denominated funds to help channel money into the private
sector and improve corporate governance of local firms.
The QFLP scheme, which will also be adopted by Beijing and
Tianjin, allows overseas investors to convert dollars into yuan
for private equity investment in China under a certain quota,
bypassing a procedure that requires obtaining approval from the
country's foreign exchange regulator on every deal they make.
However, these transactions would still require approval
from the Ministry of Commerce, putting foreign funds at a
disadvantage to their local rivals.
"The QFLP scheme won't make a huge difference to our
operations," said one source. "It's a small step, but in the
Carlyle declined to comment, while venture capital firm DT
Capital and buyout giant Blackstone could not be reached for
Global private equity funds have been rushing to set up
operations in China as they prepare to launch yuan-denominated
funds in the world's second-biggest economy.
In 2009, Blackstone became the first foreign buyout firm to
unveil plans for a local-currency fund in China, aiming to raise
5 billion yuan ($770 million).
Carlyle has launched two yuan-denominated funds, in Shanghai
and Beijing, in partnership with Chinese companies while another
buyout giant, TPG also unveiled plans for two yuan funds in
China worth 5 billion yuan each.
Foreign private equity investors have been able to invest in
China through hard currency funds but they face numerous
investment hurdles including lengthy approval procedures, tough
regulatory scrutiny and complicated exit strategies.
(Editing by Jacqueline Wong)