By Kane Wu
HONG KONG (Reuters) -Chinese private equity firm Trustar Capital is planning to raise a so-called continuation fund that would allow it to sell down its stake in McDonald’s China, two sources with knowledge of the matter said.
The new fund would also allow investors in Trustar’s existing fund tied to McDonald’s China unit cash in on their investments, said the people, who declined to be named as the information was confidential.
That plan would be achieved by Trustar, formerly known as CITIC Capital, transferring some equity interest in McDonald’s China from its private equity (PE) fund into the continuation fund, a new investment vehicle that would manage the asset.
During the fundraising process for the continuation fund, investors in Trustar’s PE fund, known as limited partners, would have the option to sell their shares in McDonald’s China and cash out, said the people.
The size and structure of the continuation fund have not been finalised as Trustar is still gauging interest, but the owners are targeting a valuation of $10 billion for McDonald’s China in the process, said the people.
Trustar’s move underscores how PE firms are looking for alternative liquidity options amid volatile capital markets and higher interest rates that make initial public offerings or sales difficult.
Trustar is in preliminary talks with Singaporean and Abu Dhabi’s sovereign wealth funds GIC and Mubadala respectively, among others, for anchor investments in the continuation fund, the people said.
Funds focused on secondary investments will also be invited to join in upcoming roadshows, they said.
Trustar is also planning to roll over part of its holdings in McDonald’s China into a new private equity fund it is raising, said one of the people.
Trustar did not respond to a Reuters request for comment. Without commenting on Trustar’s plan, MacDonald’s China said it was “highly confident” about long-term sustainable growth in China.
Mubadala declined to comment. GIC did not immediately respond to requests for comment.
In 2017, Chicago-based McDonald’s Corp sold an 80% stake in its Chinese operations to a group that included CITIC Ltd, its investment arm CITIC Capital, and Carlyle Group for up to $2.1 billion.
Currently, Trustar owns 42% of the business, while Carlyle and CITIC own 28% and 10% respectively, according to McDonald’s China.
Carlyle has also been considering options for its stake in McDonald’s China, including setting up a continuation fund, Reuters has reported.
“McDonald’s China will continue to leverage the capital and other resources from CITIC (Trustar), Carlyle, and McDonald’s Corp to achieve the future milestone of 10,000 stores,” said McDonald’s China.
Carlyle declined to comment.
Bloomberg reported in July Carlyle and Trustar Capital were planning to raise $4 billion from wealth funds to buy part of their stakes in the business.
(Reporting by Kane Wu in Hong Kong; additional reporting by Yantoultra Ngui in Singapore and Sophie Yu in Beijing; Editing by Sumeet Chatterjee, Mark Potter and Louise Heavens)