October 16, 2008 / 5:55 PM / 11 years ago

UPDATE 4-Beijing fund to hike stake in Blackstone-source

(Adds details, paragraph 8, updates shares)

By Megan Davies and Jessica Hall

LONDON/PHILADELPHIA, Oct 16 (Reuters) - Sovereign wealth fund China Investment Corp intends to raise its stake in private equity firm Blackstone Group (BX.N) from 9.9 percent to 12.5 percent by purchasing shares on the open market, a source familiar with the matter said on Thursday.

CIC bought its original stake in Blackstone just before the company’s $31-a-share initial public offering in June 2007, but has seen the value of its investment sink.

Blackstone’s shares are currently trading at less than a third of the IPO price.

The New York-based company, one of the world’s biggest private equity firms, has been hammered as the year-long crisis practically shut down the credit markets. A revival in leverage is vital for the firm to be able to do deals of any significant scale.

The original agreement with Beijing Wonderful Investments Ltd — the legal entity set up by China Investment Corp to invest in Blackstone — was struck in May 2007.

That pact allowed the sovereign wealth fund to own up to 9.99 percent of the private equity firm.

In a regulatory filing on Thursday, Blackstone said the parties had entered into a new agreement to raise the beneficial ownership limit applicable to Beijing Wonderful Investments and its affiliates to 12.5 percent.

The source said CIC intended to raise its stake by buying shares on the open market. Raising the stake would not require regulatory approval, the source familiar with the matter said.

A research note from Morgan Stanley analysts said the letter agreement should be supportive of Blackstone’s shares.

Shares of Blackstone hit a low of $8.67 but rebounded along with the broader market and were up 20 cents, or 2.2 percent, at $9.40 in late trading on the New York Stock Exchange.

Blackstone’s Chief Executive Stephen Schwarzman said at a conference in Dubai on Tuesday that he was not happy with Blackstone’s current share price.

“People look at our equity as a reflection of the availability of credit,” he said. “I don’t believe any CEO believes his stock is fairly valued.”

Two other private equity giants — Kohlberg Kravis Roberts & Co’s [KKR.UL] and Apollo Management’s [APOLO.UL] — are also waiting in the wings to become public companies.

KKR has announced plans to go public this year through a complicated transaction that involves buying its publicly listed Amsterdam investment fund, delisting it from Amsterdam and relisting the new company in New York.

Apollo, run by investor Leon Black, filed in April to register securities, already traded on a private exchange, on the New York Stock Exchange.

But neither listing relies on raising public cash, protecting them to an extent from a potentially embarrassing cut in offer prices to get the listings done. (Editing by Richard Chang, John Wallace, Gary Hill) (For more M&A news and our DealZone blog, go to here)

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