Blackstone Group Completes First Deal In China

The Blackstone Group LP has closed its first deal in China, agreeing to invest up to $600 million in exchange for a 20 percent stake in China National Bluestar Corp., a chemical concern. The deal follows a flurry of hiring by Blackstone Group in the region, a sign that more deals could be in the offing.

The China National Bluestar stake purchase was more than a year in the making for Blackstone Group, which planted the seeds for the investment prior to its initial public offering in June 2007 by agreeing to sell a non-voting minority stake to the Chinese government in May 2007. Plans for the China National Bluestar stake purchase were first announced in September 2007, and the terms of the completed deal are the same, despite the financial crisis.

The deal was made in cooperation with China National Chemical Corp., the state-owned parent company of China National Bluestar. Two of Blackstone Group’s senior managing directors, Antony Leung and Ben Jenkins, will join the company’s board. Jenkins is a former director at chemical giant Celanese Corp., a former Blackstone Group portfolio company.

Beijing-based China National Bluestar’s products include industrial silicon, titanium dioxide powder and epoxy resins, among many others, and it has a heavy presence in the industrial cleaning and water treatment technology industries. Blackstone Group has previous experience in the industry, mainly through its deal for Celanese. By all accounts, that transaction was immensely profitable, resulting in an initial public offering on the New York Stock Exchange in January 2005, less than a year after the firm took control in April 2004. Blackstone, which put up just $650 million in equity in the deal, had completely cashed out of Celanese by May 2007, according to SEC filings.

Blackstone Group’s minority stake would limit its influence on the actual management and strategic direction of the company. But with this first deal done, the firm looks poised to pick up the pace in the region. The New York-based shop, which declined comment for this story, opened an office in Beijing in early August, and then added a 12-person advisory staff, with professionals in both Beijing and Hong Kong, on Sept. 30. That group includes partners and managing directors who previously worked at Lehman Brothers and HSBC. Total staff between the two offices is roughly 70 professionals.

China and the rest of Asia have been attracting big dollars from buyout firms. Recent examples include Oaktree Capital Management’s October 8 agreement with South Korea’s National Pension Service to explore joint investment opportunities in the country, a deal that is reportedly worth $3 billion, and Kohlberg, Kravis Roberts & Co.’s agreement to buy Unisteel, a Singapore-based disk drive maker, for $575 million in July.

Business dealings in the region, however, can be complicated. Case in point, Bain Capital and Huawei Technologies, the largest maker of telecommunications equipment in China, had an agreement in place late last year to acquire 3Com Corp., but the transaction was eventually terminated due to expected opposition from a U.S. government panel that oversees foreign investment in American companies.

The Chinese government, through its sovereign wealth fund China Investment Corp., or CIC, invested $3 billion for a non-voting stake in Blackstone Group in May 2007, just prior to the firm’s IPO. The purchase price per common unit was 95.5 percent of the public offering price, which was eventually set at $31. Requirements included that CIC would hold the investment for at least four years, and that the stake be kept to less than 10 percent of Blackstone’s outstanding stock.