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.

February 2010 Issue
 二零一零年二月號

Content 內容提要


Feature
 封面文章

Focus
焦點

Case Study
案例研究

News
動態透視

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

Index & Exchange Rates
索引及匯率

 

Power to Consume

It is now official. In 2009, domestic consumption in China replaced exports and capital investment as the principal driver of economic growth in the Middle Kingdom, according to the National Bureau of Statistics of China (中華人民共和國國家統計局). In the 12 months ending December, spending by China’s consumers was estimated to account for 37.3% of the past year’s gross domestic product. It was not only the best year for retail sales, but also an undisputed testament of the success of Beijing’s Rmb4 trillion (US$588.2 billion) stimulus package instituted in late 2008. At long last, the people of China are no longer hoarding their cash and are instead beginning to loosen their purse strings.

The Consuming Sector
That stimulus package not only re-aligned the forces that have been driving China’s economic growth, but also private equity investors’ investment strategies, as evidenced by the latter’s capital deployment pattern in 2009. In the 12 months ending December 2009, China’s private equity transaction aggregate stood at US$6.6 billion. Although this amount represented a 35% plunge compared to the US$10.1 billion in the preceding 12 months, it is noteworthy that virtually all industrial sectors registered declines in securing commitments from private equity investors in 2009 with the exception of two. These two were the banking and finance industry as well as the sector related to consumers.

Transactions in the banking and finance sector were largely dominated by Hopu Investment Management Co. (厚樸投資管理公司)(‘Hopu’), which purchased shares of two of China’s largest banks that were listed on the Stock Exchange of Hong Kong: Bank of China Ltd. (中國銀行) and China Construction Bank (中國建設銀行). Together, these two transactions accounted for more than two-thirds of the US$985 million recorded for this sector, suggesting that the surge of the investment amount in the banking and finance sector during 2009 was an expression of intense interest by one single investment firm.

However, in those industries such as automobiles and healthcare, as well as food and beverages, which are reliant on consumers’ purchasing power, private equity investors have been swift to respond to Beijing’s stimulus measures. In the 12 months ending December 2009, private equity investors had deployed over US$3.4 billion to this pool of companies that are related to consumer appetite, representing over half of the 2009 US$6.6 billion transaction aggregate. The percentage, at 52%, surpassed the 39% recorded in 2008 for a similar group of companies. It was no coincidence that the five largest consumer-related deals completed during 2009 have all been able to garner well over US$200 million in commitments from investors, suggesting investors’ overwhelming optimism toward the future growth of enterprises counting on consumers’ dollars.....

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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Divestments 資金套現
Test of Strength
Investors display their sentiments for quoted private equity assets

Time and tide wait for no man. So too, the stock market. In less than a year since the fall of Lehman Brothers, Asia, especially Greater China, has rebounded. Private equity investors with China portfolios bid farewell to 2009 by recording the highest number of exits that employed the initial public offerings (‘IPOs’) route, which at 81, far exceeded that for 2008 by 62%. At a time when questions remain as to the sustainability of the current economic recovery, a long list of Chinese companies, backed by private equity, have successfully gained quoted status, underscoring the central role of those stock markets that hosted such IPOs. The 2009 divestment profile also displayed a new trend in IPOs that accentuated the vital role of bourses in China.

Of the 81 IPO records that used the public offering route, the Stock Exchange of Hong Kong (‘SEHK’) and Shenzhen Stock Exchange (‘Shenzhen SE’) accounted for a combined 89%. While the SEHK accounted for 31%, its neighbour took up 58% of the IPO pie. Significantly, it was the first time that a bourse in the A-share market has overtaken all other stock markets in capturing the number of IPOs.

The US stock market, which was once the most sought-after public address of Chinese companies, only managed to pick up the remaining 11%. NASDAQ has also lost its magnetism with China’s aspiring technology companies, with one known IPO recorded. It was China Nuokang Bio-Pharmaceutical Inc., that was backed by both Sequoia Capital China and HBM BioVentures.

As an illustration of the waning pull of US bourses, Chinese companies backed by private equity that were listed in the US in 2009 have largely not been able to witness a positive increase in their share prices since their IPOs. This is not the case for those listed on the SEHK and Shenzhen SE. At the end of January, the median percentage attained by companies listed on the SEHK during 2009 was 17%; and an exhilarating 58% for those on the Shenzhen SE. It is an undisputed statement that the bourses in China, including the SEHK, shall be the dominant force in the future IPOs of Chinese companies.

There are however signs that those that were listed on SEHK and Shenzhen SE are beginning to lose their grip with investors. SouthGobi Energy Resources Ltd., the largest coal producer in Mongolia, saw its first day closing price plunge as much as 11% . This is despite the fact that the mining company had earlier secured US$100 million from China Investment Corp., a name that has come to symbolise Beijing’s endorsement of a company.

Even ChiNext, China’s own version of NASDAQ, perhaps the world’s youngest stock market, registered a continuous decline of investors’ interest in its stocks for their debut performance. On 20th January, ChiNext hosted its fourth batch of technology companies. On average, all stocks witnessed a surge of 23% of their initial public offering prices, on that day, a distant percentage from the 106.2% recorded when ChiNext first commenced its trading on 30th October last year.

In a matter of three months, ChiNext saw the rapid depletion of investors’ interest in its stocks. It is a reminder of the rather fickle public market in which investors’ sentiments can sway like a see-saw. While IPOs have provided a platform for private equity investors to dispose of their shares, astute portfolio management of companies that have been listed is key to ultimate superior returns.

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