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Citigroup Invests in Loan Guarantee Firm

Citigroup Inc.'s venture capital unit has invested US$25 million in one of China's biggest firms providing loan guarantees to small and medium-sized enterprises, a senior Chinese executive said last Friday.

Though small, the investment underscores the appetite among global private equity players to bet on the country's underdeveloped financial services sector.

Citigroup Venture Capital International (CVCI) would become the second major foreign entity to pour cash into Credit Orienwise Group Ltd. after the Asian Development Bank invested US$10 million in recent months, he said.

"The Citigroup unit has invested in us," said Peng Jize, chief operating officer at Credit Orienwise. Citigroup declined to comment.

Foreign private equity firms are flocking to China, tipped by some analysts to become the region's biggest market in a few years, to invest in everything from tourism to property.

High profile private equity investments in the country's financial sector include the purchase of a near 18 percent stake in Shenzhen Development Bank Co. Ltd. (SZA: 000001) by the US buyout fund Newbridge Capital last year.

Goldman Sachs' private equity arm is part of a consortium that has signed an in-principle agreement to buy a 10 percent stake in Industrial and Commercial Bank of China for more than US$3 billion.

Investing in loan guarantees could prove lucrative given the difficulties faced by countless small and private Chinese firms, which are unable to access bank loans without the right political connections or collateral.

Shenzhen-based Credit Orienwise had provided guarantees for around 14 billion yuan (US$1.73 billion) worth of loans by September of this year, up from just 540 million yuan in 2001, Peng said.

(Shenzhen Daily November 8, 2005)

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