China's Trustar raises $1 bln for vehicle that holds McDonald's China stake, sources say

By Kane Wu

HONG KONG, Nov 21 (Reuters) - Trustar Capital has raised $1 billion for a continuation fund that will hold the Chinese private equity firm's controlling stake in McDonald Corp's MCD.N operations in mainland China and Hong Kong, two sources with knowledge of the matter said.

A continuation fund is a new vehicle created by a private equity (PE) firm to transfer holdings of existing investments. The concept has gained traction in Asia in recent years as PE firms' exit from companies via IPOs became challenging.

Sovereign wealth fund Qatar Investment Authority (QIA) has committed the biggest amount to become the anchor investor in Trustar's continuation fund, said the sources, who declined to be named as the information is confidential.

Other investors in the $1-billion continuation fund included Chinese sovereign fund China Investment Corp $(CIC.UK)$ and a number of Chinese yuan-denominated investors, they added.

McDonald's China said the firm was pleased to see Trustar has increased its investment in McDonald's China, based on "a strong confidence in the growth prospects" of the Chinese economy, as well as the company's development potential.

The company said its goal to reach 10,000 restaurants remains unchanged. "The transaction further simplifies the ownership structure ... with the support of our shareholders, we will continue to drive the future growth of our business."

Formerly known as CITIC Capital, Trustar transferred its equity interest in McDonald's China from its private equity fund into the continuation fund, which will hold 52% of the operations, said the sources.

Trustar didn't immediately respond to a Reuters request for comment. CIC and QIA declined to comment.

The capital raised for the continuation fund will be used to provide an exit to some investors in Trustar's private equity fund, known as limited partners, said the two sources and another person with knowledge of the matter.

In 2017, Chicago-based McDonald's sold an 80% stake in its Chinese operations to a group that included CITIC Ltd 0267.HK, its investment arm CITIC Capital, and Carlyle Group CG.O for up to $2.1 billion.

The two CITIC entities owned 52% jointly in that deal.

CITIC Ltd said last month it had agreed to sell its 19.23% stake in the company to a unit of Trustar for $430.3 million, fully exiting the business at a valuation of around $2.2 billion.

In comparison, Carlyle announced a year ago the sale of its 28% stake back to McDonald's, which valued the China business at $6 billion, Reuters reported at the time. After the repurchase, McDonald's raised its stake to 48% in the China business.

The closure of the continuation fund valued McDonald's mainland China and Hong Kong operations at the same level as the CITIC's deal last month, said the two sources.

Trustar's closing of the continuation fund comes as PE firms and their investors look for alternative liquidity options amid volatile market conditions, geopolitical tensions and China's tightening of IPOs.

Investors in the continuation fund will also commit capital to a new private equity fund Trustar is raising, said the sources.

(Reporting by Kane Wu; Editing by Sumeet Chatterjee and David Evans)

((kane.wu@thomsonreuters.com; +85228436590; Reuters Messaging: kane.wu.thomsonreuters.com@reuters.net))