Asia Private Equity Review - Greation China Edition

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.

January 2010 Issue
 二零一零年一月號

Content 內容提要


Feature
 封面文章

Analysis
本期關注

Case Study
案例研究

News
動態透視

Institutional Corner
機構投資者

Funds
基金動向

Investments
投資聚焦

Divestments
資金套現

The Lens
圈內透視

Window of the world
世界之窗

People on the Move
人物花絮

Summary : Subscribers’ weekly
每週摘要

Summary : Deal
交易摘要

Stock Watch

Index & Exchange Rates
索引及匯率

 

The Waiting Game

Within months, a new private equity landscape will emerge in China. By March, the “Measures for the Administration of the Establishment of Partnership Enterprises within China by Foreign Enterprises or Individuals” (外國企業或者個人在中國境內設立合夥企業管理辦法)(‘Measures’) will come into effect, which will facilitate the establishment of foreign-invested partnership enterprises (FIPEs). It is Beijing’s latest move in reshaping its private equity market.

In the short history of China private equity, 2009 – a year before FIPEs will become a common feature – was a watershed. It underscored Beijing’s determination to develop its own private equity and venture capital market in which domestic currency funds will be the mainstay; and its A-share market shall be the principal platform of exits for investors. In an unusually swift regulatory move, the Measures that were issued on 2nd December last year will take less than four months to become effective. During the past decade, Beijing had not only further advanced the development of its A-share market, but also materialised its decade-long goal by launching ChiNext, its own version of NASDAQ.

For those investors who are managers of investment vehicles that are domiciled outside of the People’s Republic of China (to be collectively known as ‘foreign private equity investors’), the changing paradigm in China’s private equity market has left a host of questions waiting for answers. As foreign private equity investors seek time to assess the implications of this new era in China private equity, in which the “domestic” theme will prevail, they are demonstrating their acumen in managing this “waiting period”. While most have largely abstained from launching a new fund, their deal consummation pace continued. A clear investment pattern has been taking shape that reflects the strategy .....

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.

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Funds 基金動向
Dragon’s Charter
Beijing has spelled out its mandates for private equity/venture capital funds

In China’s three decades of economic reforms, no other asset class has received such extensive recognition and structural overhaul such as private equity. By all measures 2009 was a milestone year. In these 12 months, as the chill winds of the global financial crisis howled especially during the first half of the year, China has been steadfastly executing its grand plans for private equity. By the end of the year, with US$8.7 billion of fresh capital, China had not only taken the crown as the market with the largest fresh fund pool for the year, but had already instituted an array of new funds that will further advance the country’s agenda.

For the first time, a state-owned fund of funds was launched. The Beijing Private Equity Investment & Development Fund (北京股權投資發展基金)(‘Beijing Private Equity’) had already raised Rmb2 billion (US$292.9 million) and will be making allocations to three guidance funds covering three specific industrial sectors: general technology, green energy and cultural. Each fund will receive Rmb500 million from Beijing Private Equity.

It is, however, the industrial funds that have been established during the last year that reflected Beijing’s grand scheme. In those 12 months, this type of fund accounted for nearly half, or US$4.3 billion, of the fresh capital coming into the China market.

The effort to launch industrial funds for major industrial sectors has been all encompassing. The country’s military unit and the Great Wall Securities Co., Ltd. (長城証劵責任有限公司) were sponsors of the largest fund for 2009 not only for China, but for the region. During the year, the Military Industrial Investment Fund (國防工業產業投資基金) achieved its final closing of Rmb20 billion (US$2.9 billion). It towered over CITIC Capital China Partners II, L.P., which raised US$500 million, the second largest China fund for 2009.

The sheer size of the Military Investment Fund mirrored Beijing’s grand scheme to employ the private equity investment structure to advance the country’s various industries including aviation, military, education, funerals and cemeteries.

Even the country’s behemoth financial institutions, such as the China Construction Bank (中國建設銀行), also deployed resources to set up funds that target certain sectors. Its healthcare fund, the first in the country, raised Rmb2.6 billion for its first closing. It has a target size of Rmb5 billion.

While the industrial funds focus on companies in growth/expansion situations, Beijing also turned its attention to the promotion of early stage companies. In the last quarter of the year, it chose to partner with seven local governments to initiate the launches of 20 venture capital funds that will bring an additional Rmb9.2 billion into the market. Beijing has earmarked Rmb1 billion as seed capital for these 20 venture capital funds; while those local government partners will be responsible for Rmb1.2 billion. The remaining Rmb7 billion will come from the private sector. No Asian country has ever launched venture capital funds en masse and on such a grand scale.

Before Beijing bid farewell to 2009, it also unveiled its blueprint for those foreign investors seeking to manage China’s domestic currency funds. Less than a year ago this was a concept, but Beijing is eager to attract foreign talent to shape the future of its domestic private equity funds. The “Measures for the Administration of the Establishment of Partnership Enterprises within China by Foreign Enterprises or Individuals” (外國企業或者個人在中國境內立合夥企業管理辦法) issued in early December will come into force by March this year. With this, foreign-invested partnership enterprises (‘FIPEs’) will become the feature management structure in China’s private equity market.

Some foreign-funded firms, such as Prax Capital Management Co., Ltd. (普凱投資基金), are forerunners in having received the green light to proceed with managing renminbi funds. Its two renminbi funds, Prax Capital (Tianjin) Growth Capital Fund, LP raised Rmb564 million, while Prax Capital (Tianjin) Real Estate Fund was closed at Rmb594 million. Both were launched during the year and were fully subscribed by domestic investors, indicating the keen level of interest in investing in private equity.

China has displayed its savvy in employing the private equity model to its fullest. Private equity funds are even being used to help advance the country’s political agenda. As part of its foreign policy to advance its relationship with ASEAN nations, the Export-Import Bank of China (中國進出口銀行) sponsored a US$10 billion China-ASEAN Fund (中國—東盟投資合作基金) during the year. The development bespeaks of China’s astute management of its state capital.

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