China’s CICC mulls $7.5bn fund to buy assets from cash-strapped local authorities – exclusive

Investment bank aims to raise capital from public and private Chinese corporates and funds of funds, but does not rule out foreign participation.

One of China’s largest investment banks, CICC, is planning to launch a 50 billion yuan ($7.45 billion; €6.63 billion) infrastructure fund within the next two months, a source with knowledge of the matter has told Infrastructure Investor.

The source said the vehicle would aim to purchase new opportunities in the country, where local authorities are scrambling to deleverage their balance sheets after years of heavy public spending on infrastructure.

Infrastructure Investor has learned that CICC expects to hold a first close during the second half of 2019, and a final close during the second quarter of 2020.

The source said the fund would be looking at operational assets in three sectors: transport, with a focus on high-speed rail; digital infrastructure, primarily in data centres; and public utilities. It will be targeting 15 percent IRRs.

It will be CICC’s second infrastructure fund after the investment bank launched a 10 billion yuan vehicle in 2017. The CICC Infrastructure Fund has already deployed 70 percent of its capital, the source said.

The bank is aiming to raise money from Chinese funds of funds and large private and state-owned corporations, as well as from capital markets in Hong Kong and Macao. However, our source said CICC had not ruled out attracting capital from foreign investors.

Speaking about a possible partnership with Japanese investors, the source said that LPs from that market were still “very reluctant” to invest in China. The source said this was due to a “lack of knowledge” in Japan about the Chinese market and the sectors CICC would be targeting.

Despite this, the source stressed the need for more foreign capital in China’s infrastructure market. The central government is pushing local authorities to clean up their balance sheets, and most Chinese institutional investors are mainly allocating their capital to fixed-income products.

“There’s an extensive need for long-term equity capital to deleverage the economy, and that capital needs to come from abroad,” the source said.

China Construction Bank and Morgan Stanley jointly founded CICC in 1995 as the country’s first investment bank. The US investment bank exited the firm in 2010. According to CICC’s website, state-owned investment company Central Huijin is currently its major shareholder.

According to the bank’s annual report, CICC Capital, its private equity platform, managed over 251.6 billion yuan through several offshore and onshore funds as of 30 June 2018.