This online issue of the Asia Private Equity Review - Greater China Edition is made available with abbreviated content. To read the full content together with more in-depth news, perspectives, and analysis, please subscribe or contact us to purchase back issues.
September 2009 Issue
二零零九年九月號
Content 內容提要
Feature
封面文章
Analysis
本期關注
- Reverse Cycle
Case Study
案例研究
- Troubled Waters
News
動態透視
- Xinjiang Goldwind Seeks “H” Share Status
- Acorn’s Net Profit Rises 25%
- CIC’s 2008 Return was Minus 2.1%
- Shanghai Aims to Become PE Hub in East Asia
- Founder of Eastern Multimedia Irks Carlyle
- Court Freezes Assets of GOME Founder
- TPG Inches Forward in Sale of Shenzhen Development Bank
- CIC’s Multi Interests
- Pacific Alliance Buys Land Titles in China
Institutional Corner
機構投資者
Protecting the Legend Funds
基金動向
In Partnership We Trust Investments
投資聚焦
In the Public Arena An Issue in Life People On The Move
人物花絮
Divestments
資金套現
Road to Liquidity Platform Slow Boat to Exit The Lens
圈內透視
Rocks of China VC Review
評論
Window of the world
世界之窗
Summary : Subscribers’ weekly
每週摘要
Summary : Deal
交易摘要
Index & Exchange Rates
索引及匯率
People’s Notes
T he passport for entry to China private equity fund management is no longer the greenback, at least at this juncture. Instead it is Renminbi (‘Rmb’), also known as yuan, China’s currency. After nearly two years of planning by the National Development and Reform Commission (中華人民共和國國家發展和改革委員會), on 19th August, the State Council (國務院) approved the framework of the Administrative Measures for the Establishment of Partnership Enterprises in China by Foreign Enterprises or Individuals (‘Foreign Partnership Rules’). This tacit nod has set the stage for foreign fund sponsors to form partnership entities in China. It is by far the most revolutionary change undertaken by any Asian government to promote private equity.
In the days before and after the Foreign Partnership Rules were approved, five new Rmb funds were announced. Together they will create an aggregate fund pool of an estimated Rmb32.6 billion (US$4.8 billion), if all respective target sizes are achieved. The Shanghai government captured the limelight, as the city is the force behind the launches of four funds. The Blackstone Group has inked a memorandum of understanding with the Shanghai Pudong New Area People’s Government (上海市浦東新區人民政府) for the launch of its maiden Rmb5 billion fund. Within days, CLSA Asia-Pacific Markets announced its partnership with the Shanghai Guosheng (Group) Company Limited (上海國盛(集團)有限公司) for a Rmb10 billion joint venture fund. This was followed by First Eastern Investment Group and Prax Capital, both of which have received approval from the city’s government to be among the first four foreign firms seeking the green light to launch their yuan fund management firms.
Capping this series of announcements was the US$1.5 billion joint venture infrastructure fund between China Everbright Limited (中國光大控股有限公司) and Macquarie Group Limited. This first infrastructure fund for the Greater China region sets a precedent, as it will comprise both foreign and local currencies. .....
This online issue of the Asia Private Equity Review is made available with abbreviated content. To read the full content together with more in-depth news, perspectives, and analysis, please subscribe or contact us to purchase back issues.
Funds 基金動向In Partnership We Trust
Domestic funds are partnering with industry experts to set up fundsWith a growing list of foreign fund management firms now also entering the renminbi fund management arena, a new development heralds the latest set of competitive dynamics at work in China’s private equity market. In view of foreign firms’ skilled management expertise, domestic fund firms are no longer sitting on their laurels. To enhance their competitive edge, domestic fund management firms are demonstrating an astute approach. In addition to focusing on industry specific funds, they are also enlisting resources that could provide expertise knowledge of their target industries.
Haitong Securities Co. Ltd. (海通證劵股份有限公司) has been one of the earliest institutions in China’s private equity investment sector, and has enjoyed an illustrious investment record. It was the cornerstone investor in the €100 million (US$114 million) China-Belgium Direct Equity Investment Fund (中國-比利時直接股權投資基金),which is arguably one of the best performers in private equity in China. Despite its depth of knowledge and lengthy record, Haitong Securities demonstrated an astute approach in the launch of its most recent venture. The Jilin Modern Agriculture and Bio-Technology Industrial Fund (吉林省現代農業和生物技術產業基金) has a modest fund size of only Rmb300 million (US$43.9 million). Haitong Securities is partnering with the Jilin provincial government, which is known for its expertise in the agriculture biotechnology industry.
Jilin Province holds an unrivaled position in its production of grain per capita, grain commodity utilisation rate and international corn exports in China. The per capita tillable field is 0.21 hectre, representing a 2.2 times that of the country’s average.
Having a strategic partner with expert knowledge in the target industry is now integral to a new fund set up by domestic investors. China Construction Bank is a relative new entrant in private equity fund management. In launching the first aviation fund for China, the lender, through its investment banking arm, CCB International (Holdings) Ltd.,(建銀國際控股有限公司) is teaming up with Aviation Industry Corporation of China (‘AVIC’) to sponsor the Rmb5 billion yuan China Aviation Industrial Fund. Despite the bank’s expertise in financial management, the fund will be managed by a joint subsidiary between AVIC and the bank.
Another powerful name in China’s asset management industry is China Huarong Asset Management Corp. (中國華融資產管理公司) (‘Huarong’) which has an established investment record since 1999 and an active investor in direct investment. In its latest venture to set up a Rmb1 billion fund that focuses on the steel industry, Huarong has enlisted Hunan Valin Steel Group Co. Ltd.. The latter is one of the most active investors in commodities. It has recently committed A$1.2 billion (US$1 billion) in taking a stake in Fortescue Metal Group. Huarong shall be managing this first steel fund for China with one of the best known names in China’s steel industry.
There are no barriers when it comes to access to expert knowledge. Yunnan Agriculture Through Venture Capital Co. (‘Yunnan Agriculture’) has recently launched a Rmb200 million HongFu Equity Fund that will invest in the cemetery industry. Yunnan Agriculture is leveraging its existing partnership with Gobo Services, headquartered in Taiwan, which is one of the largest cemetery industry-focused enterprises on the island.
China’s nascent domestic fund management industry must be overwhelmed by the sudden surge of foreign private equity firms that are now granted mandates to manage domestic currency funds. In the month of August alone, at least five firms including The Blackstone Group, CLSA Asia-Pacific Markets, First Eastern Investment Group, Macquarie Group and Prax Capital Management Co. Ltd., are known to have been given the green light to manage renminbi-funds. The list is only the beginning. For domestic fund management firms to compete against their foreign counterparts, pooling their resources and having industry expertise are some of the survival tactics that they must employ without delay.
Investments 投資聚焦In the Public Arena
Private equity investors prefer to seek listed assetsSince the beginning of the second half of the year, there have been encouraging developments indicating that investment activities are gathering pace, and that investors are now ready to commit in deals with substantial sizes. In the eight weeks ending August, a transaction aggregate of US$908.6 million has been recorded. This, compared to US$2.7 billion in the first half of the year, portends an active deal making second half of the year. In this first sign of a revival of investment activities, investors have chosen to deploy capital in publicly-listed companies rather than adhering to the traditional capital deployment to unlisted assets. When TPG announced its participation in the HK$1.65 billion (US$211 million) commitment to Wumart Stores, Inc. (北京物美商業集團股份有限公司)(‘Wumart’), a Beijing-based superstore and mini-mart operator listed on the second board of Stock Exchange of Hong Kong (‘HKSE’), it was the private equity firm’s third investment in a publicly-traded company since June this year. During the past few weeks, bourses in Hong Kong, Singapore and USA, where a pool of Chinese companies are listed, have witnessed vibrant private equity activities.
Hong Kong Bourse
In Hong Kong, FountainVest Partners (Asia) Ltd. (方源資本) (‘FountainVest’) is the latest private equity firm to follow the footsteps of Bain Capital LLC (貝恩資本) and TPG in purchasing shares of a public company. FountainVest’s HK$765 million (US$98.07 million) subscription to convertible bonds and warrants issued by Central China Real Estate Limited (建業地產股份有限公司)(‘Central China’) was in fact the first transaction made by the private equity firm since its maiden fund achieved its final closing last year. Central China is a property developer quoted on the HKSE, and FountainVest is upbeat on the property developer’s future share price movement. The conversion price for the bonds will be HK$3.1, while the warrants could be exercised at HK$4.1 each. Both prices are significantly higher than Central China’s closing price of HK$2.39 on 4th August, the day before FountainVest disclosed this transaction.Even the Beijing-based Tsing Capital(青雲創投), which has been a loyal venture capital disciple and long been making allocations only to unlisted technology companies, joined the party. In August it completed the second known purchase of in recent months. Tsing Capital invested US$25 million in Nobao Renewable Energy Holdings Limited (‘Nobao’). Nobao is a leading developer of ground-source heat pump technology. It provides integrated energy management solutions to hotels, shopping centres, office buildings and residential houses.
Tsing Capital’s China Environment Fund III has the mandate to invest in environmental-related companies. The investment in Nobao came weeks after Tsing Capital injected US$30 million into Neo Neon Holdings (真明麗控股有限公司), a LED maker that is also listed on the HKSE.
Other Bourses
Sequoia Capital China (紅杉資本中國基金) (‘Sequoia China’) joined the growing list of investors to subscribe to public equities. It has recently written out a cheque to American Dairy, Inc. (‘American Dairy’), a listed company on a US bourse. It will invest US$63 million, of which US$47 million will be channelled to American Dairy in cash, with the remaining amount to convert a US$16 million bridge loan into equities.American Dairy is a dairy product manufacturer based in Heilongjiang. Until it enlisted Sequoia China as an investor, it had been listed on the Arca board of the New York Stock Exchange. Following this injection of private equity capital, American Dairy has moved to the main board of New York Stock Exchange.
In Singapore, the latest private investment in public equities (‘PIPE’) took place during the last week of August. In the buyout of Sihuan Pharmaceutical Holdings Group Ltd. (‘Sihuan’), a manufacturer of cardiocerebral vascular drugs in China, Morgan Stanley Private Equity Asia (‘MSPEA’) has pledged approximately S$68.74 million (US$47.7 million) for this takeover. MSPEA will subscribe to Sihuan’s convertible bonds which, when converted, will represent a 15% stake in the new company.