Greenberg makes China comeback

PUBLISHED : Thursday, 25 January, 2007, 12:00am
UPDATED : Thursday, 25 January, 2007, 12:00am

Former AIG chairman to set up 1b yuan private equity fund with Citic Securities

In a heady return to China for former American International Group boss Maurice Greenberg, his closely held investment vehicle Starr International will join Citic Securities, the mainland's largest-listed brokerage, in setting up a one billion yuan private equity fund to target Chinese companies before their initial public share offerings.

The brokerage, held by the state-owned conglomerate Citic Group, will spend up to 500 million yuan on a 50 per cent stake, while Bermuda-based Starr, AIG's largest shareholder, will spend a similar amount to take the remaining stake, the mainland firm said in a filing with the Shanghai Stock Exchange.

It said the board would authorise the management to sign the agreement later.

The venture is the first commercial comeback in China for Mr Greenberg since he was ousted in 2005 due to accounting irregularities as chairman of AIG. It is also the first international insurer to gain Beijing's permission to do business in the mainland.

A frequent visitor, he had developed close ties with many mainland officials, including former premier Zhu Rongji, since the country started its economic reform in 1978.

A source familiar with Mr Greenberg, 81, said he was eyeing many buying opportunities in China, including a hospital he wanted to buy through the joint venture and prepare for a listing. 'He never considers himself too old and has said he plans to work for another 20 years,' the source said.

The move is a breakthrough for Citic and signals a possible lifting of the decade-long rule barring brokerages from investing outside stocks, futures and mutual funds.

China International Capital Corp and China Merchants Securities are also interested in pre-offering financing, said a source, something the China Securities Regulatory Commission might allow to test the feasibility of brokerages moving beyond their natural scope.

'Citic is a big brand and it will definitely compete against foreign venture capitalists and private equity investors in China,' said Rocky Lee, a partner with law firm DLA Piper UK. '[The market] is already competitive for the foreign investors right now and it will only get more competitive.'

Citic did not specify which currency it will use to finance the venture. But most likely it will be yuan, which would require a less complex legal structure than foreign currency even if it would not get the same type of preferential rights protection, Mr Lee said.

The venture might also find a rival in AIG - the world's largest insurer by market capitalisation - which has also been aggressively investing venture capital in China. The source said Mr Greenberg had been preparing to invest in China since leaving AIG but had to wait to settle his legal dispute with the firm.

In the settlement, Mr Greenberg kept the rights to use the Starr name but agreed not to use the name American International. The two sides, however, are still contending over Starr's 12 per cent stake in the insurer, which claims the shares as its own.

Mr Greenberg, who over 37 years built AIG into a global insurance and financial giant, was forced out in March 2005 due to an investigation by New York attorney general Eliot Spitzer over a series of accounting issues at the firm.

In February last year, AIG settled with Mr Spitzer and the Securities and Exchange Commission, paying a US$1.6 billion in fines and restitution.