Business is booming.

Private equity keeps the party going in China

One thing to start: A group of 255 of the UK’s top private equity dealmakers earned £2.7bn in carried interest in a single year, the kind of gains that have drawn scrutiny from politicians threatening to increase taxes on the industry.

And one note: If you were unable to access the link to our FT Big Read on Centerview Partners in yesterday’s DD, you can read it here.

Welcome to Due Diligence, your briefing on dealmaking, private equity and corporate finance. This article is an on-site version of the newsletter. Sign up here to get the newsletter sent to your inbox every Tuesday to Friday. Get in touch with us anytime:

In today’s newsletter:

  • China remains cosy with private equity

  • The Issa brothers shuffle their debt, again

  • Junk debt makes a comeback

Private equity’s lasting love affair with China

When the Chinese government bought a $3bn stake in US private equity giant Blackstone in 2007, the private equity titan’s chief Stephen Schwarzman hailed the deal as a “paradigm shift in global capital flows”.

Beijing splashed out on UK trophy assets from Heathrow airport to a unit of the National Grid. Former UK prime minister David Cameron even tried to start a $1bn private equity fund anchored by the state-backed China Investment Corporation.

But then, not long after a China-bearish Donald Trump took the White House in 2017, the music stopped. For everyone except Schwarzman and his private equity peers, that is.

The masters of the universe have continued to receive billions of dollars of Chinese state money, DD’s Will Louch and Kaye Wiggins and the FT’s Yuan Yang report, even as geopolitical tensions have broken up the fun elsewhere.

Stephen Schwarzman
Industry heavyweights such as Blackstone’s Stephen Schwarzman are still interested in Chinese sovereign funds despite the changing political climate © Bloomberg

The list of firms that have received investments from Chinese state funds is a who’s who of the industry, according to insiders and an FT analysis of regulatory filings.

Many have enjoyed the influx of Chinese capital alongside limited reporting requirements, leaving politicians and regulators widely in the dark. 

“It’s essentially a black box, in terms of the origins of the money,” says Lily McElwee, a China expert at Washington’s Center for Strategic and International Studies.

The buyout industry argues, with some credibility, that their investors are passive. Most are structured so as to not give foreign investors board seats or voting rights, arguing that it’s a risk-free way to attract foreign capital.

But the issue is beginning to attract the attention of regulators and politicians, who’ve begun to demand more information on where the money is coming from.

“Increasingly for big deals, PE funds have to tell US and UK regulators who is behind them through national security filings,” said McDermott Will & Emery’s Peter Lu

Firms now face a difficult choice as they navigate one of the toughest fundraising markets in history: cut exposure to Chinese investors to assuage regulators, or lean into the country as other sources run dry.

The Issa brothers’ latest debt shuffle

It takes a skilled salesman to argue that Asda’s £2.3bn purchase of EG Group’s Irish and UK operations wasn’t mainly aimed at paring back its sister company’s $9bn debt.

Lord Stuart Rose, who chairs both the UK supermarket chain and the deeply overleveraged petrol stations empire, certainly gave it a go.

“The primary driver of this deal was creating a business, which is a different business, a multichannel champion,” he said. “Now, if as a consequence of that you’ve also got the opportunity of deleveraging on the other side, what’s wrong with that?”

Asda says the deal would add about £195mn of earnings after rent and about £100mn of synergies over the next three years. But to most investors — despite Rose’s insistence otherwise — reducing EG’s debt is the real selling point.

The transaction has all the trappings of a yet another feat of financial engineering from the billionaire Issa brothers, Mohsin and Zuber, who co-own both groups with their private equity partners at TDR Capital.

To fund the deal, Asda is borrowing £770mn from buyout group Apollo and raising £1.1bn of property-related transactions, mainly through the sale and leaseback of some of its stores, while the Issas and TDR will shell out about £450mn of additional equity.

That may seem like a small cheque to write in the context of all the new financial liabilities ladened on Asda, but by the usual standards of the two brothers and the British private equity firm, it’s positively chunky.

Remember, this is the group that stumped up just £200mn between them to pull off the UK’s biggest leveraged buyout in a decade when they initially bought Asda, DD’s Rob Smith and Kaye Wiggins revealed earlier this year.

What’s telling is the latest manoeuvre is the exact opposite of what they initially sought out to do when they acquired Asda in the first place.

A plan to sell Asda’s petrol pumps to EG fell through in 2021 after fuel suppliers refused to maintain the same terms. Reversing course suggests that the Issas are willing to shuffle their assets in whichever way best tackles their extensive debt load.

Junk debt makes a comeback

Wall Street is ever so slowly revving up its junk debt machine. 

Banks including JPMorgan Chase and Goldman Sachs have begun extending multibillion- dollar loans to fund leveraged buyouts, as they get comfortable with a market that just last year had badly bruised the industry. 

Apollo, Elliott Management, Blackstone and Veritas Capital have all received backing in recent months to fund takeovers, a welcome sight as they attempt to put hundreds of billions of dollars of dry powder to use.

Bankers say that, despite the turmoil that hit the banking sector this spring, underwriting is becoming a more attractive option once again.

“Silicon Valley Bank and Credit Suisse hit just when we were catching a bid, slowing us down,” Chris Blum, the head of corporate finance at BNP Paribas, told DD’s Eric Platt. “[But] you’re starting to see the syndicated option come back.”

This month, a group of banks led by Goldman agreed to lend $3.7bn to Elliott and some of the group’s partners backing the takeover of healthcare company Syneos. Apollo’s takeover of Arconic, announced this month, is also set to be financed by banks including JPMorgan before the loan is sold to other investors.

It’s a small win for leveraged finance desks across Wall Street, where the mood has been dour for the better part of a year. Not only had slow dealmaking curtailed their activity (leading to job cuts and lacklustre bonuses), but the Federal Reserve’s rapid pace of interest rate hikes also pushed the value of the loans banks hadn’t yet sold deep underwater. 

The other nugget of good news for those underwriting risky corporate loans: an $8.2bn deal banks were likely to lose money on — financing the takeover of TV station operator Tegna — has been aborted now that the takeover has been terminated. It’s money they can put to work elsewhere. 

Job moves

Dina Powell McCormick
Dina Powell McCormick © Bloomberg
  • Dina Powell McCormick, the global head of Goldman’s sovereign business, is leaving to become vice-chair and global head of client services at BDT & MSD Partners, the investment and advisory firm run by Goldman veterans Byron Trott and Gregg Lemkau.

  • Unilever chief financial officer Graeme Pitkethly will retire next year after more than two decades at the consumer goods giant. 

  • Nestlé has hired the London Stock Exchange Group’s finance chief Anna Manz as CFO, replacing Francois-Xavier Roger.

  • Hiscox Insurance has named Morgan Stanley International chair Jonathan Bloomer as chair designate, replacing Robert Childs, who is set to retire in July.

Smart reads 

China’s electric engine Tech billionaire Bai Houshan has cornered the market for a critical ingredient to electric vehicle batteries, and supercharging China’s EV dominance in the process, the FT reports.

VIP access The financial mechanics of the music industry are changing. For the super-rich, that means it’s easier than ever to book a megastar for birthdays, bar mitzvahs and more — for a price, The New Yorker writes.

No one is safe The saga at Credit Suisse suggests that being liquid and well-capitalised won’t save a risk-taking bank from its own bad choices, writes the FT’s Robin Harding.

News round-up

Goldman Sachs weighs fresh job cuts as dealmaking drought persists (FT)

Temasek cuts pay of employees behind failed $275mn bet on FTX (FT)

Philip Morris on path to becoming an ESG stock, says chief executive (FT)

Purdue Pharma allowed to shield Sackler owners from opioid lawsuits (FT)

Goldman Sachs’s China dealmaker stops tapping US investors (FT)

Alternatives M&A: keeping up with the Blackstones will invite scrutiny (Lex)

Due Diligence is written by Arash Massoudi, Ivan Levingston, William Louch and Robert Smith in London, James Fontanella-Khan, Francesca Friday, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Antoine Gara in New York, Kaye Wiggins in Hong Kong, George Hammond and Tabby Kinder in San Francisco, and Javier Espinoza in Brussels. Please send feedback to

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