UPDATE 1-China, Belgium to raise $439 mln for new joint fund

(Adds potential investors, quotes and details)

HONG KONG/SHANGHAI, Jan 7 (Reuters) - China and Belgium plan to raise about 3 billion yuan ($439 million) for their second joint private equity fund with a focus on small Chinese companies, sources briefed on the plan said on Wednesday.

The planned fund, to be called China-Belgium Direct Equity Investment Fund II, follows a similar fund launched in 2005 that is now fully invested, the sources said.

In 2005, Haitong Securities 600837.SS, one of China's largest brokerages, and European financial group Fortis FOR.BRFOR.AS won permission from Beijing to set up an asset management joint venture in Shanghai to manage the 1 billion yuan China-Belgium Direct Equity Investment Fund I.

“If you think the first fund is a kind of test, then the upcoming second fund will be very serious and aggressive since the first fund has proven to be a success,” said one of the sources.

The second fund will be run by Haitong-Fortis Private Equity Fund Management Co Ltd, said the sources who declined to be identified as they were not authorised to speak to the media.

A Shanghai-based official at Haitong-Fortis confirmed the firm was fund-raising for the second yuan-denominated China-Belgium fund but declined to comment further.


Private equity has a short history in Asia, where western investors have been frustrated by the difficulty in sourcing deals, leading some to seek tie-ups with local fund players.

The first China-Belgium fund has invested in about 20 small- and medium-sized Chinese enterprises since 2005, including four that have listed and at least seven other IPO-ready firms, said one of the sources.

“Haitong-Fortis had a pretty good track record operating the first China-Belgium fund, which will help it to raise the new fund,” said Liang Jing, an analyst at Guotai Junan Securities Co.

“Although the IPO market is now almost frozen, the impact on the new fund should be limited, as it takes time for the money to be raised and invested, so at time of exit, the economy and market are likely to recover,” he added.

Institutional investors, also known as “Limited Partners”, of the first China-Belgium fund include some funds from the Belgium government, Fortis, China’s Ministry of Finance, China Development Bank and some other Chinese private enterprises.

It is unclear if Fortis may still contribute capital to the second China-Belgium fund as Fortis was carved up by the Dutch, Belgian and Luxembourg governments in October, with French bank BNP Paribas BNPP.PA buying the Belgian operations after an 11.2 billion euro cash injection failed to calm investor concerns. ($1=6.832 Yuan) (Reporting by George Chen in HONG KONG and Samuel Shen in SHANGHAI; Editing by Jacqueline Wong)