Regulatory News – November 2008

China vets foreign institutions, suspends IPOs * Malaysia welcomes overseas venture investors * China Investment Corp to raise stake in Blackstone

China vets foreign institutions, suspends IPOs
The Chinese government has asked all foreign companies with operations on the mainland to disclose the state of their financial health and to provide details about how their businesses are likely to be affected by the global financial crisis, the UK’s Telegraph newspaper has reported.

All foreign financial institutions in China also have to supply regulators with unofficial audits. The request includes Hong Kong-based private equity firms as well. The report added that all Chinese companies in joint ventures with foreign firms will have to supply details about their partners’ solvency.

Meanwhile, all new share listings in China have been suspended. The China Securities Regulatory Commission (CSRC) has not approved applications of IPOs since mid-September, according to the South China Morning Post. The newspaper reported sources as saying that the IPO reviewing committee of the CSRC had stopped processing applications on 16 September.

Malaysia welcomes overseas venture investors
The Securities Commission of Malaysia has approved the application of Japan Asia Investment Company (JAIC) to become the first foreign venture capital firm to operate in Malaysia. Although JAIC is the first venture firm to be allowed to operate in Malaysia, a number of other foreign later-stage GPs have invested in the country in the past.

“The presence of foreign VCs in the local venture capital scene will add greater depth and breadth to the pool of players within the industry,” said Zarinah Anwar, chairman of the Securities Commission. There are currently 57 domestic venture capital firms registered with the commission. JAIC’s entry into Malaysia will increase the pool of funding available in the country, the commission said in a statement.

Listed on the Tokyo Stock Exchange, JAIC is active in buyouts, restructurings and secondary investments.

China Investment Corp to raise stake in Blackstone
China’s $200 billion sovereign wealth fund will increase its stake in New York-based global alternatives manager The Blackstone Group. To pave the way for CIC to purchase a larger stake, Blackstone raised the equity limit CIC could own in the publicly listed firm to 12.5 percent, according to an SEC filing.

Beijing Wonderful Investments, the investment vehicle CIC used to buy more than 100 million non-voting units of Blackstone prior to the firm’s public float last year, was formerly prohibited from owning more than 9.99 percent of the firm. The fund will increase its stake in Blackstone by buying shares in the open market, a source told sister publication PrivateEquityOnline. CIC paid about $3 billion for the stake it currently owns in Blackstone.

Separately, the Chinese sovereign fund has said it will withdraw all its money from the Reserve Primary Fund, a troubled US money market account, although the fund suspended withdrawals in September.

CIC said it had received written confirmation that it would receive both its principal and the accompanying interest. “Currently CIC is a creditor, not a shareholder, of the fund. Although CIC had invested in the fund, it filed a redemption order before the fund announced the suspension of redemption; in addition the fund has confirmed in writing that CIC’s investment will be redeemed at par. On legal advice, CIC is confident of its position with regard to the full recovery of its money,” CIC said in a statement on its website.

The sovereign wealth fund had a stake of potentially more than $5 billion in the fund through its wholly-owned investment arm Stable Investment Corp, according to Reuters.