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Shanghai government sets up $7.9bn fund to facilitate overseas M&A

17 Feb 2012

The Shanghai government has set up China’s largest yuan-denominated international fund, which will help finance Chinese companies that are looking to expand abroad.

The RMB50bn ($7.9bn) vehicle has already raised RMB12bn ($1.91bn) towards its target, and is expected to leverage more than RMB150bn ($23.82bn) by setting up affiliated vehicles and issuing bonds.

The fund will offer a platform for Chinese companies looking to venture overseas for growth opportunities, and will also prioritise the use of local currency in pricing, transaction and settling of projects in a bid to reduce dependence on the US dollar.

The platform will be managed by Sailing Capital International, a firm established by Shanghai International Group, the investment arm of the Shanghai government.

The government hopes that the fund will work alongside other recent projects to turn Shanghai into a global financial hub by 2020 and a centre for renminbi trading, clearing and pricing by 2015.

The new fund is one of a number of schemes established by the Chinese government to enable the country to become more internationally competitive, which include the state’s adoption of private equity as a strategy for overseas growth.

The government has committed sizeable amounts of money to firms such as Sino-European firm Mandarin Capital and Israeli-Chinese investor Infinity Group, which both facilitate overseas expansion.

State-backed China Development Bank (CDB) recently launched an overseas investment operation in Hong Kong and signed strategic partnerships with global private equity majors Permira, KKR and TPG.

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