GLOBAL - Blackstone is to sell half of its 25% stake in Royal Bank of Scotland's (RBS) real estate debt portfolio to the China Investment Corporation (CIC), the $409.5bn (€295.8bn) Chinese sovereign wealth fund, according to increasingly credible market rumours.
Blackstone and RBS agreed in July to set up a separate vehicle for RBS's £1.4bn (€1.6bn) loans to commercial property - mainly those with a loan-to-value ratio of more than 90%. Under the terms of the agreement, RBS will keep a 75% stake in the fund.
The bank will sell down its stake over time as part of an agreement to divest non-core assets portfolio valued at £260bn by 2013.
A source at the bank told IP Real Estate: "How and when it sells will depend on the market - but there will be equity up for grabs."
RBS and Blackstone, which will continue to manage the portfolio, have yet to agree terms for the transfer of assets, though RBS said a transfer deal would be agreed within weeks.
When it signed the agreement with RBS, Blackstone made no secret of the fact that it would raise external debt for its 25% stake in the debt portfolio.
This will be the second major debt-buying deal by Blackstone and CIC, which is a shareholder in the private equity group. Back in February, CIC was a financial investor in a joint venture with Blackstone for the acquisition of a discounted $1.1bn Japanese property loan portfolio from Morgan Stanley.
Neither CIC nor Blackstone were available for comment before deadline today.
CIC, which invested almost $36bn across asset classes last year, allocates 21% of its overall portfolio to alternatives, including real estate and infrastructure. It also has significant exposure to debt in its domestic market via significant shareholdings in a number of state-owned enterprises, including banks.
Blackstone, meanwhile, recently reported a net loss for the third quarter in its real estate division as the sharp volatility in the markets in the third quarter hurt carrying value of its assets.
The company's economic net income (ENI) for the real estate division incurred a loss of $65.7m for the third quarter of 2011, representing a sharp swing from a positive ENI of $148.0m for Q3 2010.
"The third quarter presented extremely challenging market conditions, dominated by risk aversion and volatility," said Blackstone chairman and CEO Stephen Schwarzman.
The company said the volatility in the public markets "impacted the [real estate] segment's public stock holdings and certain hospitality investments along with the negative impact of foreign exchange."
He said that the company had reported net inflows in all business segments and grew fee-earning assets under management to a record $133bn, up nearly 30% year-over-year.
The company also took advantage of weakness in the markets, he said, to invest $4.8 billion in total capital, "our highest level of investment activity since 2007, sowing the seeds for strong future returns."