Strong demand for Blackstone IPO

Blackstone’s $7.8bn (£3.9bn) initial public offering was about seven times subscribed on Wednesday with strong investor demand for the units, especially from Asia, the Middle East and Europe, despite concerns over the US private equity group’s valuation.

People close to the offering said orders for Blackstone units had significantly outstripped supply. However, they added that demand from big US mutual funds had been limited by concern over a possible increase in Blackstone’s tax liability.

The threat grew on Wednesday as the political momentum in Washington to increase the tax burden for Blackstone and other private equity groups gathered pace.

An aide to Max Baucus, chairman of the Senate finance committee, said Mr Baucus was considering toughening legislation introduced last week that would raise the tax bill for listed private equity groups. The aide said the committee was open to shortening the proposed five-year grace period before Blackstone would face higher taxes. “The chairman is getting lots of feedback from people who like the bill and think it is the right approach,” the aide to Mr Baucus said.

The listing, which is being closely watched on Wall Street and across the booming private equity industry, was originally scheduled for next week, but on Tuesday Blackstone moved it forward by several days.

The decision followed a deterioration of conditions in the bond markets, which are crucial to Blackstone’s core buy-out business, and increased political scrutiny of the transaction.

In a last-minute filing with US regulators, Blackstone reiterated its units would sell for between $29 and $31 each in the IPO, which is expected to price on Thursday night, paving the way for trading to begin on Friday on the New York Stock Exchange.

Blackstone is selling about 153m units to investors in a landmark flotation expected to raise up to $4.8bn, value the firm at about $32bn and allow founders Steve Schwarzman and Pete Peterson to receive a combined pay-out of up to $2.6bn. The firm has also agreed to sell up to $3bn worth of units to China’s new foreign reserves agency, lifting the IPO size to up to $7.8bn.

Unless US mutual funds pile in to the offering at the 11th hour there could be concerns about the strength of demand once the shares start trading in the open market. The performance of Blackstone’s units will be watched by rivals including Kohlberg Kravis Roberts, Apollo Management, Carlyle Group and TPG Capital, all of which have been studying possible listings.