Blackstone targets BlueStar stake

PUBLISHED : Wednesday, 20 June, 2007, 12:00am
UPDATED : Wednesday, 20 June, 2007, 12:00am

US buyout firm seeks 30pc interest in mainland chemicals company for US$500m

Blackstone Group is in preliminary talks to buy a 30 per cent stake in China National BlueStar (Group) Corp's chemicals business for about US$500 million, marking the United States buyout firm's first big deal in the country after the government agreed to take a 10 per cent stake in its initial public offering.

The move comes after bankers walked away from BlueStar's planned share sale because its financial situation was deemed too dire to proceed, market sources said.

The company had planned to raise about US$300 million this year in Hong Kong.

Blackstone, which opened its first office for the Greater China market in January, is hoping to catch up with rivals such as Carlyle Group and Warburg Pincus, which already have a few key deals in the mainland.

The buyout firm hired former Hong Kong financial secretary Antony Leung Kam-chung to help seek deals in the mainland. It received a boost last month when Beijing agreed to pay US$3 billion for a 10 per cent stake in its share offering.

The investment was seen as a way for the mainland to ease its growing foreign exchange reserves, which hit US$1.2 trillion, as well as the pressure from the US for it to allow a faster appreciation of the yuan.

However, deals in the mainland have become more difficult to finalise as Beijing tightens scrutiny of big foreign purchases of state assets amid rising nationalistic sentiment.

Carlyle reduced its planned acquisition in machinery maker Group Construction Machinery from 85 per cent to 40 per cent, while Arcelor Mittal is still awaiting government approval to buy a 38.41 per cent stake in Laiwu Steel after an agreement more than a year ago.

Sources said discussions on Blackstone's intended purchase in BlueStar were at the early stages and might still not proceed.

Both companies declined to comment yesterday.

BlueStar had assets of 30 billion yuan and sales of more than 30 billion yuan at the end of 2005, according to its website.

The company has more than 30 subsidiaries and scientific research institutes.

It owns stakes in three domestically listed companies - BlueStar Cleaning, BlueStar New Materials and Shenyang Chemical Industry. Shenyang Chemical, which makes soda, resin and petrol, has a market capitalisation of 6.4 billion yuan. Its shares are up 177 per cent this year, almost triple the 60 per cent rise of the Shanghai Composite Index.

BlueStar is a subsidiary of China National Chemical Corp, the mainland's largest chemical maker, and is considered one of its better units.

'China National BlueStar has an edge on new chemical material among its peers, and its 54 per cent-owned subsidiary BlueStar New Chemical Materials is a leader in the industry as the largest manufacturer of organo-silicone,' said Haitong Securities analyst Deng Yong.

Organo-silicone is an organic compound containing silicon for industrial applications.

The parent firm acquired Qenos, Australia's largest polyethylene maker, in April last year after BlueStar bought Adisseo Group's animal nutrition businesses in January. Polyethylene is used to make bottles and packaging.

Shelved share sale

The amount BlueStar had planned to raise in an initial public offering in Hong Kong this year, in US$: $300m