Mumbai: Blackstone Group, in which China''s first state overseas investment agency recently bought a $3 billion stake, will acquire a 20 to 40 per cent stake in chemicals company China National BlueStar (Group) Corp for up to $500 million.

The acquisition will mark Blackstone''s first major investment in mainland China, the world''s fastest-growing major economy.

Sources said the two sides are finalising talks and an agreement is likely to be signed within days.

BlueStar is a unit of China National Chemical Corp, a major Chinese chemicals maker with annual sales of 30 billion yuan ($3.98 billion), it said on its website.

BlueStar has more than 70 subsidiaries, including research institutes and holds stakes in three domestically-listed firms - Blue Star Cleaning Co, Blue Star New Chemical Material, and Shenyang Chemical Industry.

China Bluestar is also expected to seek a market listing next year. This would give Blackstone a platform to expand both domestically and overseas.

China Bluestar, part of state-owned China National Chemical Corp, has been among the more active Chinese companies in buying international firms, and now owns a former Courtaulds textiles factory in Grimsby.

Blackstone''s investment in China comes at a difficult time for private equity deal-makers because the credit crunch has made it harder to finance leveraged transactions.
Blackstone, which is being advised by Merrill Lynch, is expected to gain a number of seats on the board as part of the transaction, sources added.

The deal will also be a landmark for Blackstone, which earlier this year negotiated an agreement to sell just under 10 per cent of itself to a new state investment vehicle being set up by China''s government.

That deal, which cost Beijing $3 billion, was expected to provide Blackstone with a better chance of securing deals on the mainland, where foreign private-equity groups have found buyouts difficult to pull off.

Carlyle, which has been waiting almost two years for regulatory approval for an investment in Xugong Machinery, an industrial group, is among those to have suffered setbacks in China.

The opposition from Chinese officials to takeovers of companies in "strategically important" industries has prompted private equity firms to examine minority investments and other means of deploying their capital.

Blackstone raised $4.13 billion in its initial public share offer in New York in June, the largest US IPO since 2002. It has also taken part in some of the largest leveraged buyouts ever, including the purchase of Chicago-based Equity Office Properties Trust for $23 billion and the $17.6 billion buyout of Freescale Semiconductor. It also owns Michaels Stores and Pinnacle Foods, maker of Duncan Hines and Vlasic pickles brands.

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