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CIC and Blackstone team up in Japan purchase
By Henny Sender in Hong Kong

Published: February 20 2011 21:19 | Last updated: February 20 2011 21:19

China Investment Corp, the country’s main sovereign wealth fund, has teamed
up with Blackstone
<http://markets.ft.com/tearsheets/performance.asp?s=us:BX> to buy a
Japanese property loan portfolio from Morgan Stanley
<http://markets.ft.com/tearsheets/performance.asp?s=us:MS> at a steep
discount to its face value of $1.1bn, according to sources familiar with the
matter.

The deal, which was agreed last year, represents a change in style for CIC
<http://www.ft.com/cms/s/0/a657ba86-219a-11e0-9e3b-00144feab49a.html> as the
fund grows more sophisticated.

EDITOR’S CHOICE
In depth: Sovereign wealth funds <http://www.ft.com/indepth/sovereignfunds>
- Sep-23
China Investment Corp defends business model
<http://www.ft.com/cms/s/0/bd85cd0e-2a2f-11e0-997c-00144feab49a.html> -
Jan-27
Blackstone boosted by real estate
<http://www.ft.com/cms/s/0/0b3e2a7c-2fa4-11e0-834f-00144feabdc0.html> -
Feb-03
Lone Star in talks over Japanese lender
<http://www.ft.com/cms/s/0/f741e60a-27ea-11e0-8abc-00144feab49a.html> -
Jan-24
CIC seeks more funds out of China reserves
<http://www.ft.com/cms/s/0/a657ba86-219a-11e0-9e3b-00144feab49a.html> -
Jan-16
While Blackstone’s role in the transaction was known, the fact that CIC was
the main buyer was not disclosed.

CIC and Blackstone paid about 35 cents on the dollar for the portfolio,
which includes both current and non-performing loans, sources said. CIC put
up most of the money, they added.

“It is a good entry point,” said an observer. “The market is just beginning
to recover.”

CIC has become much more interested in buying up distressed debt and has
become a more active investor, rather than taking on a passive role in funds
and paying high fees that cut into returns. Gao Xiqing, the fund’s chief
investment officer, recently said CIC would reduce its investment in
developed markets, which account for 85 per cent of its flows, and do more
in emerging markets.

Morgan Stanley made most of the loans in Japan between 2005 and 2007, when
the Japanese market appeared to be slowly recovering.

The investment bank’s original plan to slice the loans into securities and
sell them in the commercial mortgage-backed securities market was derailed
by the global financial crisis.

Last year, as the market stabilised, the investment bank approached CIC to
gauge its interest in buying the portfolio.

The two firms have a close relationship. CIC bought 9.9 per cent of Morgan
Stanley for $5.6bn at the end of 2007, and has also invested in Msref VII
Global, Morgan Stanley’s latest property investment fund.

The CIC-Blackstone deal comes as sentiment regarding the prospects for
Japanese property, especially in Tokyo, has started to improve. Rents and
vacancies have stabilised and banks are resuming lending to the sector.

Blackstone and Morgan Stanley declined to comment.