(Adds quotes, details and background)
By George Chen
HONG KONG Dec 10 Starr International, an
investment firm controlled by U.S. insurance tycoon Maurice
"Hank" Greenberg, has failed to win Beijing's approval to launch
a planned private equity joint venture with top China brokerage
CITIC Securities (600030.SS), sources said on Wednesday.
Early last year, Starr International and CITIC Securities,
backed by state-owned conglomerate CITIC Group, jointly announced
that they planned a 50/50 private equity fund venture with
initial registered capital of 1 billion yuan ($145.5 million).
If successful, it would have become the first private equity
fund venture to be launched by a foreign investor and a domestic
brokerage in China. Such arrangements lie in a regulatory grey
area, with no specific rules governing them.
Not wishing to set a precedent that other foreign private
equity firms might follow, the China Securities Regulatory
Commission (CSRC) rejected the planned venture, two sources with
direct knowledge of the matter told Reuters.
"The regulator doesn't want to make it a unique case so that
other foreign investors take it as a model," said one of the
"It's also complicated to have a foreign partner for such
business as you also need to talk to the foreign exchange
regulator to seek an investment quota," he added.
It was not immediately clear whether Starr would seek to
adjust its proposed joint venture structure to address Beijing's
The sources declined to be identified due to the sensitive
nature of the situation. CITIC Securities declined to comment,
while Greenberg, the longtime former chief of American
International Group Inc (AIG.N), could not be immediately reached
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Foreign private equity companies have had difficulty in
China, where mistrust of western-style leveraged buyouts runs
deep among regulators.
"In particular to big deals, it is difficult for foreign
investors to seek approval from the government, which is
concerned about a lot of issues including national security and
foreign exchange control," said Kenneth Zhou, a counsel
specialising in mergers and acquisitions at law firm Wilmer Hale.
Earlier this year, U.S. buyout giant Carlyle Group [CYL.UL]
finally walked away from three years of negotiations to buy
Xugong, China's top construction equipment maker, after running
into bureaucratic obstacles. (For details: [ID:nSHA323138])
Despite failure to team up with Greenberg's Starr, instead,
CITIC Securities won approval from the CSRC earlier this year to
set up its own private equity house called CITICS Private Equity
Funds Management Co Ltd, part of a new national scheme that
Beijing wants to promote its domestic private capital sector.
CITICS Private Equity Fund Management, one of about a dozen
Chinese brokerage-run private equity firms approved by CSRC this
year, is expected to manage its first investment fund of 6
billion yuan to focus on consumer, retail and energy sectors.
Early this year, Greenberg's Starr and others tried to buy
into China International Capital Corp, in which Morgan Stanley
(MS.N) holds a one-third stake, but the deal did not proceed due
partly to price concerns, industry sources said.
(Additional reporting by Lilla Zuill in NEW YORK)
(Editing by Jacqueline Wong)