Goldman's China Partner Makes First Private Equity Investment

By Cathy Chan

April 30 (Bloomberg) -- Fang Fenglei, Goldman Sachs Group Inc.'s China partner, is investing $300 million in the owner of a Mongolian iron ore mine together with Temasek Holdings Pte, his first deal since starting a private equity fund last year.

Hopu Investment Management Co., founded by Fang in 2007, joined with Temasek to buy three-year convertible bonds in Hong Kong Lung Ming Investment Holding Ltd., which operates the mine, according to a document seen by Bloomberg News. Contents of the document were confirmed by two people familiar with Fang's plans. They requested anonymity because the talks are private.

Fang gave up day-to-day duties running Goldman's China venture last year to focus on his private equity firm, while remaining chairman. Hopu Investment will join Los Angeles-based Clarity Partners LP and Credit Suisse Group as an investor in Lung Ming, according to the document.

Lung Ming controls 53 percent of a company that owns and operates the Eruu Gol iron ore project in Mongolia. Its local partner, Dornyn Gobi LLC, owns the rest, the document said.

Hopu Investment will invest between $150 million and $200 million in Lung Ming and Temasek, Singapore's $120 billion sovereign wealth fund, will provide the rest, according to the people. Temasek spokesman Mark Lee declined to comment.

The bonds will pay 10 percent interest, the document said. Lung Ming plans to sell first-time shares in Hong Kong this year, it said. The projected annual yield on the investment is 25 percent to 35 percent.

Mineral Wealth

Rio Tinto Group and BHP Billiton Ltd. are among companies seeking to develop mines in landlocked Mongolia to tap its mineral wealth as prices for iron ore and other metals increase. Mining accounts for 30 percent of Mongolia's gross domestic product and 78 percent of exports, according to government data.

Mongolia, where annual per-capita income is about $1,000, is considering changing its mining laws to force companies to share output or give more than half of their projects to the state. Lawmakers are deadlocked on the legal amendments, Ganpurev Dugarjav, vice chairman of Mongolia's Foreign Investment and Foreign Trade Agency, said last week.

The Eruu Gol iron ore mine, 90 kilometers (56 miles) northeast of Darhan, owns three adjacent iron ore deposits under a single mining license valid until 2037. The mines, located 70 kilometers from the Trans-Mongolian railway line, contain an estimated 304 million metric tons of iron ore, the document said.

Lung Ming raised $20 million from private equity firm Clarity Partners June 2007, and $110 million in October last year from a group of investors including Credit Suisse by selling convertible bonds, according to the document.

Fang's Lieutenants

Fang is chairman of Hopu Investment. Richard Ong, Goldman's former Asia co-head of investment banking, joined him this year as the fund's chief executive officer. Dominic Ho, former partner at KPMG, is vice chairman. Ho declined to comment.

Zha Xiangyang resigned in March as CEO of Goldman's China securities venture to help Fang run another private equity fund denominated in the Chinese currency.

Hopu Investment, which plans to raise about $2.5 billion for its overseas fund, received more than $300 million from Goldman and $1 billion from Temasek, people familiar with the matter have said. Richard Ong's brother, Charles Ong, is chief strategist at Temasek.

Goldman and its private equity funds invested a combined $563 million in nine Chinese companies last year, making it the biggest investor in the nation among Wall Street firms, according to the Asian Venture Capital Journal said.

Fang helped Goldman secure an investment banking license in China in 2004, giving the New-York based firm a head start over Merrill Lynch & Co., JPMorgan Chase & Co. and Citigroup Inc. in a market where companies raised $67 billion in stock sales in 2007.

To contact the reporters on this story: Cathy Chan in Hong Kong at [email protected]

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