China SWF says won't lose money on U.S. fund freeze

BEIJING, Oct 15 (Reuters) - China Investment Corp., the country's sovereign wealth fund, said on Wednesday that it had ordered a full withdrawal of its cash from a troubled U.S. money market account before it was frozen.

Indeed, it had received written confirmation that it would receive its principal and interest, the wealth fund said.

The Reserve Primary Fund REPXX.O suspended redemptions last month when it became the first money market fund in 14 years to "break the buck", the par value of its shares falling to $0.97, because of losses on debt issued by Lehman Brothers (LEHMQ.PK).

A U.S. regulatory filing showed that Stable Investment Corp, an arm of CIC, was the biggest institutional shareholder in the fund as of Sept. 1, with a stake of potentially more than $5 billion.

"CIC used to invest in the fund, but made an order to claim all its money back before withdrawals were halted," the sovereign wealth fund said in a statement published on its website (www.china-inv.cn).

"The fund has sent us a written confirmation that it will refund the principal and interest," it added. "Now, CIC is no longer the fund's shareholder, but a creditor."

CIC has attracted intense scrutiny at home over its investments in U.S. financial institutions battered by the credit crisis, with its stakes in private equity house Blackstone Group (BX.N) and Morgan Stanley (MS.N) diving in value.

CIC, which was set up last year to earn higher returns on $200 billion of China's foreign exchange reserves, came under renewed fire in Chinese online forums this week over its stake in the frozen money market fund.

CIC said it would not be subject to the possible 3 percent losses incurred by the Reserve Primary Fund after it was forced to revalue to "zero" the $785 million of Lehman securities it held.

The U.S. fund has said that it will return about one-third of investors' money in short order.

CIC said that it had been in contact with U.S. securities regulators to ensure it is repaid in full.

Stable Investment Corp held 11.1 percent of the Reserve Primary Fund's institutional shares as of Sept. 1, according to a filing with the U.S. Securities and Exchange Commission available on the regulator's website.

The net asset value of the fund's institutional class was $48.9 billion at the end of May, the most recent published date, implying that Stable Investment Corp's stake could have been as big as $5.4 billion. (Reporting by Eadie Chen; Editing by Simon Rabinovitch) (eadie.chen@reuters.com; +8610 6627 1268; Reuters Messaging: eadie.chen.reuters.com@reuters.net))