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CNBC Exclusive: Blackstone Sought China As Client, Not Investor


Blackstone Group's chairman told CNBC that the private equity giant approached China earlier this year about investing in the U.S., which led to China's announcement Sunday night that it would invest $3 billion in Blackstone itself.

In an exclusive interview with CNBC's Michelle Caruso-Cabrera, Blackstone's Stephen Schwarzman called the surprise investment a positive move for the American economy.

Blackstone CEO Speaks

"The way it helps is to the extent that capital is brought back into the United States to help us invest, to grow our country and even to export that capital to other places in the world, to make our companies more competitive is a very good thing," he said.

Earlier on Monday, Blackstone said it planned to raise as much as $7.75 billion from selling stakes to the public as well as to China.

In a filing with the U.S. Securities and Exchange Commission, the private equity firm said it plans to offer about 133 million common units at $29 and $31 each, for proceeds of $3.87 billion to $4.13 billion. The IPO could be worth as much as $4.75 billion if another 20 million units are sold to meet demand.

The IPO would rank among the top 10 U.S. IPOs and would be the largest by a private equity firm, according to Dealogic. It could value Blackstone at $33.6 billion, based on an equivalent 1.085 billion units outstanding after the offerings, the firm said. Timing of the offering has not been set.

Blackstone Approaches Beijing

The Chinese government announced plans in February to spend $200 billion in alternative investments as the country sought to diversify foreign currency reserves of more than $1 trillion.

Schwarzman told Caruso-Cabrera Blackstone that Blackstone approached Beijing shortly after and offered its services as a private equity firm. Blackstone was surprised when China ended up agreeing to invest in Blackstone itself.

"Schwarzman said he was extremely pleased, and in less than three weeks they got the deal done," said CNBC's Michelle Caruso-Cabrera. "He found them incredibly efficient and great to work with as well."

China Invests in Blackstone Group

"It's almost a perfect paradigm of one is supposed to do in a global system with money," Schwarzman said. "You're not supposed to hoard it and spend it in your own country. To the extent that you give it to other people who can employ that money productively, that creates an increased living standard."

Private Equity Goes Global

Blackstone is selling units as a master limited partnership, giving shareholders limited voting rights. Existing holders would retain a 78.1% stake, while Beijing would own 9.7% and new unit holders 12.2%, Blackstone said. If the overallotment option were exercised, new unit holders would own 14.1%.

Blackstone said it would use net proceeds from both offerings for investments and expansion, to buy back interests from existing managers, and to pay off debt. The firm has said having public equity allows flexibility in pursuing deals and gives it a variety of financial means to retain employees.

China, the world's fastest growing major economy, is trying to boost returns. Much of its $1.2 trillion of foreign exchange reserves is invested in dollar-denominated bonds.

"The China investment is a sign of how truly international private equity capital has become," Blaydon said.

Blackstone is going public as low debt costs spur a boom in private equity takeovers.

Profit More Than Doubles

Private equity firms buy companies, restructure their businesses, and sell them. Blackstone said profit for the quarter that ended March 31 more than doubled to $1.13 billion from $487.2 million a year earlier.

Rival Fortress Investment Group went public in February in a $635 million IPO, and on Friday had a market value of $11.4 billion. Two investment banks, Lehman Brothers Holdings and Bear Stearns, had respective market values of $38.6 billion and $17.8 billion.

Blackstone said quarterly results benefited as investment gains more than doubled to $3.78 billion from $1.69 billion. Revenue rose to $479.4 million from $221 million. The firm said it had $88.4 billion of assets under management as of May 1.

Blackstone's transactions this year include a $23 billion takeover of Sam Zell's Equity Office Properties Trust, and an agreement to buy business services company Alliance Data Systems for $6.76 billion.

Blackstone plans to list its units on the New York Stock Exchange under the symbol "BX." Citigroup Global Markets and Morgan Stanley are the lead underwriters. Credit Suisse, Deutsche Bank Securities, Lehman and Merrill Lynch are joint book-runners.