(Adds quotes, cooperation plan and background)
By George Chen and Samuel Shen
HONG KONG/SHANGHAI, Feb 4 (Reuters) - China Investment Corp (CIC), a $200 billion sovereign wealth fund, is in talks to buy up to half of CITIC Capital Holdings Ltd, an investment firm described by local media as 'China's Blackstone', two sources close to the situation said on Wednesday.
One of the sources said the deal could be worth several hundred million dollars.
CIC is expected to buy the stake from steel-to-property conglomerate CITIC Pacific, which currently holds 50 percent of Hong Kong-based CITIC Capital, the sources said.
CITIC Capital currently manages over $1.6 billion of assets and often teams up with foreign funds for joint buyout deals.
Senior officials of CIC, CITIC Pacific and its parent CITIC Group have been discussing a deal for months though no financial details have been fixed, said the two sources, who declined to be identified due to the sensitive nature of the issue.
CITIC International Financial Holdings Ltd, whose parent is also CITIC Group, holds the other 50 percent of CITIC Capital, and has no plan to sell its stake, said the sources.
Officials at CITIC Capital in Hong Kong and China declined to comment. CIC could not be immediately reached for comment.
A PERFECT MARRIAGE?
CITIC Pacific stunned markets in October when it warned of a potential $2 billion loss, which later rose to HK$18.6 billion ($2.4 billion), from wrong-way bets on the Australian dollar.
It had to turn to its Beijing parent, CITIC Group, which is directly led by the State Council, China's cabinet, for a $1.5 billion bailout.
"CITIC Pacific may need to sell some assets to repay debts following its losses in currency trading, while CITIC Capital's business is not highly correlated with its core businesses," said Paul Lee, a Hong Kong-based analyst at Tai Fook Securities.
"CIC has plenty of cash, and after making heavy losses investing in Western financial institutions, it's seeking investment opportunities in Asian markets, including China-focused firms," he added.
CIC has attracted criticism at home over its investments in U.S. financial institutions that have been battered by the global financial crisis. Its stakes in U.S. private equity house Blackstone Group and Wall Street bank Morgan Stanley have nosedived.
CITIC Capital is also eager to attract money from CIC, which may hire CITIC Capital as one of its asset managers to help it improve investment performance, the sources said.
"This can be a perfect marriage. CITIC Capital can get a new and strong shareholder, and CIC gets to tap CITIC Capital's expertise and resources," said one of the sources, adding: "CITIC Capital can also be a unique platform for CIC to tap domestic deals."
Japan also will be an investment focus this year for CITIC Capital, which runs a $70 million global hedge fund and some Asia-focused real estate funds, said the sources.
CIC is unwilling to bail out troubled Western financial firms because of unfair restrictions on its investment, a deputy general manager of the fund said in December. ($1=7.754 Hong Kong Dollar) (Editing by Ken Wills & Ian Geoghegan)