China's Sovereign Fund Sells Out of Pre-Crisis Blackstone Investment - Wall Street Journal

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The highest China Investment Corp.’s stake ever got was 9.7% of Blackstone’s outstanding shares.


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Michael Bucher/The Wall Street Journal

China’s sovereign-wealth fund has sold out of its stake in Blackstone Group LP, ending a longstanding relationship with the private-equity giant at a time of growing tensions between the U.S. and China.

The sale marks a reversal for one of China’s most-scrutinized investments from the pre-crisis era, a purchase that, to many observers, marked a watershed in China’s growth from an up-and-coming emerging-market economy to a true global giant with deepening relationships on Wall Street and across Europe.

China Investment Corp. didn’t immediately respond to a request for comment on why it sold out of the stake.

“We greatly value our partnership with CIC and are grateful for their successful, long-term investment in our firm,” a Blackstone spokesman said in an emailed statement. “We continue to expand this important relationship as one of CIC’s major asset managers and look forward to working closely together.”

Ahead of Blackstone’s initial public offering in 2007, CIC announced it would invest $3 billion for a swath of shares. The pre-financial-crisis deal was hailed as part of China’s efforts to restore equilibrium to the country’s accounts with the U.S., and thus improve relations between the two nations.

Eleven years later, that relationship once again looks strained. China has said it strongly opposes the Trump administration’s new global tariffs on steel and aluminum. Blackstone Chief Executive

Stephen Schwarzman,

a donor and sometime adviser to President Donald Trump, has regularly emphasized the importance of the relationship between the U.S. and China.

In May 2007, CIC bought the stake—roughly 101 million nonvoting units—ahead of the private-equity firm’s IPO that June. It has been steadily selling down the stake for the past five years, but the block of shares it sold in 2017 was its largest.

Blackstone said in a March 1 filing that as of Feb. 22, Beijing Wonderful Investments—the legal entity CIC set up to invest in Blackstone—no longer owned any units in the company. Roughly a year earlier, it had owned 54.5 million shares. The highest the sovereign-wealth fund’s stake ever got was 9.7% of Blackstone’s outstanding shares.

CIC bought its stake in Blackstone at a price of $29.605 a unit, a discount to its $31 IPO price. But the ensuing financial crisis walloped stocks world-wide and Blackstone’s shares didn’t return solidly to the level of their IPO price until 2014. On Tuesday, they closed at $34.26; Blackstone’s stock has also paid out $15.56 a share worth of dividends since the firm went public.

Blackstone’s deep relationship with China has also shaped its dealmaking as it has unloaded billions of dollars of holdings to Chinese buyers, reaping big rewards.

In 2015, Blackstone sold New York’s Waldorf Astoria hotel to Chinese firm Anbang Insurance Group Co. for $1.95 billion, at the time the highest price ever paid for a U.S. hotel. The following year, the private-equity firm sold Anbang a portfolio of luxury hotels that it had bought less than a year earlier. Blackstone turned a profit of about $500 million on the quick flip.

In February, Chinese regulators seized control of Anbang, saying a receivership was needed to avoid a collapse of the firm following suspected illegal activity. The government is now weighing the sale of many of these assets, and softening property markets suggest the buildings are likely worth less than what Anbang paid for them.

Blackstone also sold a 25% stake in Hilton Worldwide Holdings Inc. to Chinese conglomerate HNA Group Co. for $6.5 billion in 2016. (Hilton spun off two publicly traded companies that HNA also received a quarter stake in before the transaction was completed.) HNA is now in the process of unwinding that investment in order to help it pay down debt. It has already sold its $1.4 billion stake in

Park Hotels & Resorts
,

one Hilton spinoff, and is exploring unloading some or all of its stake in

Hilton Grand Vacations
Inc.,

another spinoff, The Wall Street Journal has reported.

Blackstone has also done further deals with CIC. Last year, it sold European warehouse firm Logicor to the sovereign-wealth fund for $13.8 billion.

China’s CIC—which was formed in 2007 and is viewed by many as a proxy for the nation’s global ambitions—is looking longingly at U.S. high-tech manufacturing, highways, rail lines and other projects, hoping to generate steady, long-term returns for the fund and acquire the technological know-how to help upgrade China’s industrial base.