Blackstone's IPO, China makes a killing

If the Middle Kingdom was a day-trader, Friday was a day to cash in


Andrew Leonard
June 22, 2007 10:15PM (UTC)

The Blackstone IPO -- dubbed by some the "Wall Street event of the year" -- is off and running. After pricing at 31 dollars per share, trading opened Friday at $37, dropped down a few dollars and then clawed back up. At blog-press time (11:00 a.m. Pacific) the stock had meandered along at a tad under $36 for about an hour.

Those who predicted that Blackstone's shares would surge to the stratosphere, in the best dot-com style, look likely to be disappointed. But there's still a few hours of trading left in the day, so we'll hold off on making fun of them. In the meantime, let's take a closer look at China's much ballyhooed $3 billion dollar stake in the private equity giant.

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China reportedly received a 4.5 percent discount on the IPO price for its shares. By my calculations, that adds up to about 101 million shares priced at $29.6. At the current price of $35.91, China's stake just increased in value by around 600 million dollars. Not a bad half day of work!

But what's good for China (or at least better than investing all that money in plodding U.S. Treasuries) may not be so great for the rest of the world, suggests the Financial Time's John Plender. China's shares, writes Plender, give it "limited voting rights and no right whatsoever to elect Blackstone's general partner." In other words, while China may stand to make a profit on its investment, it doesn't get much influence on how the company is managed in return for its money.

Public companies are accountable to their shareholders, which is supposed to keep managers focused on the bottom line (though that principle seems to work better in theory than in practice.) Plender's worry is that China's investment is just the first trickle in an oncoming flood of money from developing nations sitting on huge reserves of foreign currency who are looking for better returns, but won't push for influence in how the companies they buy into are run. The risk, writes Plender, "lies in the threat these flows pose to high corporate governance standards in the developed world."

Sounds kind of sneaky to me. The developing world takes its gains from trade with the developed world, invests it with no strings attached in blue-chip public corporations, and, if all goes according to plan, ultimately destabilizes the economies of the rich nations by encouraging those companies to behave irresponsibly, which then opens up new markets for the emerging corporate masters of the developing world. That's some long-term thinking, there.


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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