China shuts PE door on Greenberg


the catastrophe of AIG aside for a moment, it’s hard to imagine what blemishes might have convinced Chinese authorities to shut the door on Hank Greenberg’s plan for China’s first half-foreign-owned private equity venture. Greenberg’s China credentials are legendary, and Beijing wonks say everything that gets done in the People’s Republic does so because of personal connections.

Hank’s investment firm, Starr International, had hoped to start the $145.5 million joint venture with China’s top brokerage, CITIC Securities. Could the problem have been CITIC, and its soiled investment plans in U.S. firms? It came close to dropping $1 billion into Bear Stearns and had $76 million in Lehman Brothers. Sources tell us that Chinese officials did not want to open the door to a rush of foreign private equity investment.

More specifically, one of the sources said: “The regulator doesn’t want to make it a unique case so that other foreign investors take it as a model.” Well, that certainly clears things up.

It’s not that China is opposed to private equity. Officials want to develop yuan-denominated funds run by domestic managers, to reduce companies’ dependence on bank financing.

But with private equity getting such bad press in the U.S., particularly with Cerberus trying to convince U.S. taxpayers to bail it out of its investment in Chrysler, it’s no stretch to imagine Beijing getting a little less excited about private equity than it was earlier in the year.

Lehman’s long march

Staff member displays Chinese yuan notes to media at currency exchange booth at Songshan airport in TaipeiAsia’s sovereign wealth funds may be loaded, but they don’t need long memories to recall the big losses they’ve suffered on seemingly sure-thing investments in Wall Street’s troubled banks. So with reports that Lehman Brothers came up empty in efforts to win funds from top Chinese brokerage CITIC Securities and state-owned Korea Development Bank, it’s anybody’s guess where it will come up with the cash it needs to deal with an expected $4 billion in writedowns before announcing results in September.  

The path most traveled heads further east, to Singapore and the gulf, where investors could be equally, if not more gun-shy given the news flow. A ray of hope could shine from Singapore though. State investment firm Temasek said it was prepared to plunk more money into Western banks. An Singapore sling couldn’t come at a better time. This morning, Citi’s Prashant Bhatia became the latest big bank analyst to warn on Lehman and fellow investment banks Goldman and Morgan Stanley, lowering third quarter estimates for all three, and The Wall Street Journal says the Fed had called Credit Suisse last month to see if it had pulled a credit line from Lehman, acting to prevent a repeat of the cascading speculation that helped sink Bear Stearns.

U.S. private equity investor Lone Star is buying the rump of lender IKB, Germany’s most prominent casualty of the subprime crisis. The sale by state bank KfW closes an embarrassing and costly chapter for Europe’s biggest economy. IKB nearly collapsed a year ago under the weight of $24 billion in investments linked to risky U.S. home loans, making it Europe’s first major victim of the global financial crisis. The government brokered the first of three rescues to avert what the country’s banking watchdog warned could trigger Germany’s biggest financial crisis since the 1930s depression. But as the cost of the rescues spiraled towards 10 billion euros ($14.8 billion), Berlin started looking for a buyer.