Beijing fund to hike stake in Blackstone

By Megan Davies and Jessica Hall

LONDON/PHILADELPHIA (Reuters) - Sovereign wealth fund China Investment Corp intends to raise its stake in private equity firm Blackstone Group from 9.9 percent to 12.5 percent by purchasing shares on the open market, a source familiar with the matter said on Thursday.

CIC bought its original stake in Blackstone just before the company's $31-a-share initial public offering in June 2007, but has seen the value of its investment sink.

Blackstone's shares are currently trading at less than a third of the IPO price.

The New York-based company, one of the world's biggest private equity firms, has been hammered as the year-long crisis practically shut down the credit markets. A revival in leverage is vital for the firm to be able to do deals of any significant scale.

The original agreement with Beijing Wonderful Investments Ltd -- the legal entity set up by China Investment Corp to invest in Blackstone -- was struck in May 2007.

That pact allowed the sovereign wealth fund to own up to 9.99 percent of the private equity firm.

In a regulatory filing on Thursday, Blackstone said the parties had entered into a new agreement to raise the beneficial ownership limit applicable to Beijing Wonderful Investments and its affiliates to 12.5 percent.

The source said CIC intended to raise its stake by buying shares on the open market. Raising the stake would not require regulatory approval, the source familiar with the matter said.