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By Laura Santini

Of THE ASIAN WALL STREET JOURNAL


HONG KONG (Dow Jones)--Merrill Lynch & Co. (MER) is considering a significant

equity stake in a Chinese air-conditioner manufacturer, highlighting how global

investment banks are showing greater willingness to invest their own capital in

Chinese companies that want to go public later on.

Merrill's commitment could amount to as much as $250 million, according to

the chief financial officer of the Chinese company, Chigo Group. The company is

also courting other possible investors, said the executive, Hu Zhengfu. Chigo

is hoping to offer shares to the public later this year. Hu says Merrill has

signed a "letter of intent" with Chigo but that the agreement is not ironclad.

(This story and related background material will be available on The Wall

Street Journal Web site, WSJ.com.)

A Merrill spokesman declined to comment on the figure or on the likelihood

that the firm will go forward with the investment.

Merrill Lynch has not built a big presence in private equity in Asia and the

hefty amount under consideration surprised some rivals. But in the past two

weeks Merrill has been on the move in China. The firm agreed to invest $30

million in a company that is developing a major residential and commercial

complex in central Beijing. Also, in a joint venture that will give it greater

access to underwriting Chinese securities, the firm paid about $32 million for

33% of Huaan Securities.

Chigo is a well-known brand on the mainland, and also exports

internationally. The company, which is private and does not release financial

details, says it employs 16,000, that its sales increased by 50% last year, and

that its exports alone brought in 1.8 billion yuan, or about $217 million.

Global banks increasingly are buying into Chinese companies, especially those

with hopes of going public. That way, the banks can capture any investment

returns as well as an underwriting fee for the initial public offering. Goldman

Sachs (GS), Morgan Stanley (MWD) and HSBC (HBC), for example, each held equity

stakes in Ping An Insurance (Group) Co. (2318.HK) when they underwrote the

insurer's $1.84 billion IPO in June.

"More firms are taking equity stakes as a way of building the relationship

and getting close to a company before the IPO," one capital markets lawyer

said.

Investment bankers also point out that distressed debt teams in Asia have

encountered difficulty finding profitable investments, despite hyped

expectations for China's nonperforming loan market. As a result, some teams are

turning to private equity for better returns. "A lot of distressed debt teams

are morphing into global principal investment groups," one investment banker

said.

(Kersten Zhang in Beijing contributed to this report.)

By Laura Santini, The Asian Wall Street Journal; 852-2831-2531


(END) Dow Jones Newswires

02-03-05 0717ET- - 07 17 AM EST 02-03-05