Exclusive: Goldman’s China-backed fund bucks trade tensions to get U.S. firm

(Reuters) – Goldman Sachs Group Inc (NYSE:GS) invested money from China's sovereign wealth fund in a California-based industrial company and it is searching for more U.S. deals, three sources familiar with the issue said, nevertheless had comments increased scrutiny from Washington basically stopped U.S.-China deals last year.

The Wall Street bank is performing a private equity finance fund called China-U.S. Industrial Cooperation Partnership LP, so it launched with state-owned China Investment Corp (CIC) in November 2019 for the sidelines of U.S. President Donald Trump's trip to Beijing.

The fund invested alongside Goldman to order Boyd Corp, a Pleasanton, California-based manufacturer of rubber seals and gaskets, for $3 billion last September, the sources said.

Chinese efforts to get U.S. companies were tripped up in the last year by Washington's concerns china were gaining control of sensitive technology or providers that played key roles for the overall design.

Reuters reported on Wednesday which the Committee on Foreign Investment in the nation (CFIUS), a U.S. government panel that scrutinizes deals for national security risks, asked individuals who owns the dating app Grindr to divest it, spurred on by data privacy concerns.

Goldman successfully argued to CFIUS, however, what has arrange to buy Boyd ought to be able to proceed, the sources said.

CIC's novel partnership with Goldman illustrates how China is chaning to U.S. curbs on its deal-making, which triggered Chinese acquisitions of U.S. companies plunging by 88 percent year-on-year in 2018, according to financial data provider Refinitiv, as trade relations amongst the world's two largest economies deteriorated. (For your graphic on Chinese acquisitions in the nation: https://tmsnrt.rs/2HzUTVE)

The Cooperation fund was put in place expressly to aid U.S. companies penetrate individuals market. As well as the fund is touting CIC's involvement to be a strategic advantage in completing this task goal.

In a confidential marketing document ready for Goldman clients and seen by Reuters, the New York-based bank highlighted CIC's "efficient sourcing of business partners and customers," promising to "bring new pathways for growth via China."

"The Cooperation fund is usually a U.S. fund run by the U.S. manager, which is been able to wear compliance with rules, including CFIUS," a Goldman spokeswoman said.

A spokesman for any U.S. Department on the Treasury, which chairs CFIUS, said the panel won’t comment publicly on individual cases.

CIC failed to be affected by requests for comment. The sovereign fund said last summer who’s planned to press ahead with the Cooperation fund despite U.S.-China trade tensions, but information its first deal are not previously reported. The sources asked never to be identified given that the Cooperation fund's data is confidential.

RIVAL CHINESE BIDDER BALKED

Even though Goldman received CFIUS clearance for any Boyd deal, this hadn’t disclose publicly the Cooperation fund's involvement inside the acquisition and a lot of Boyd's 4,200 employees were not told regarding the Chinese money, the sources said.

A Moody's Investors Service Inc credit history note listed Boyd's acquirer as Goldman's flagship equity finance fund West Street Capital Partners VII. Following your deal, that fund transferred a minority stake in Boyd towards Cooperation fund, the sources said.

A Goldman spokeswoman declined to discuss why Goldman's Boyd-related announcements wouldn’t mention the Cooperation fund.

One Chinese company that sought to get Boyd outright had balked in the regulatory hurdles.

Kangde Xin Composite Material Group Co Ltd, a Chinese laminates manufacturer, said in regulatory announcements which it abandoned an offer for Boyd because doing so thought the "China-U.S trade friction" tends to make regulatory approval with the deal difficult.

Kangde Xin didn’t interact to a request for comment. Investment bankers said the company's failure to acquire Boyd showed CIC do not need had the oppertunity to perform the deal without the structure provided by the Goldman fund.

"It is a really innovative structure, a bed that might go a considerable ways to enable them to undertake transactions that could be a hardship on these phones do otherwise," said Euan Rellie, co-founder of BDA Partners, an investment bank masters in cross-border deals, dealing with the Goldman fund and CIC.

ANCHOR INVESTOR

CIC, whose assets under management are approaching $1 trillion, has investments in other equity finance funds. But CIC will not typically help companies acquired by equity finance funds it invests in grow in China.

CIC also calls itself an "anchor investor" inside the Cooperation fund, additionally, the sources said it holds a sizeable minority stake that is definitely larger than its typical equity finance fund investments.

"CIC seriously isn’t working in the investment management of the fund nor the procedure of the fund's portfolio companies. CIC's role will be to help Goldman Sachs, as being the investment manager, identify and pursue opportunities for portfolio companies to accomplish more business in China," the Goldman spokeswoman said.

The Cooperation fund, which targets $5 billion in expansion capital, offers execute between one and three deals 12 months normally, adding up to around 12 over the duration of the fund, a couple of the sources said.

The fund is easily the most advanced in a selection of similar investments by CIC. Within the interview with Chinese state-owned newspaper Securities Times latest research by, CIC's president, Tu Guangshao, said bilateral cooperation funds were an approach to "acquire a more favorable foreign investment regulatory environment" and "remove some barriers in cross-border investment."

Tu said CIC has inked formed of intent for a Britain-China fund, signed binding agreement for the Japan-China Industrial Cooperation Fund and is "in planning for” China cooperation funds with Italy and France.

“When you have a couple more cases similar to this that appear successful, other sovereign wealth funds and foreign investors will adopt this model,” said James Lewis, senior v . p . in the center for Strategic and International Studies, a Washington-based think tank.

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