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.

March 2010 Issue
 二零一零年三月號

Content 內容提要


Feature
 封面文章

Analysis
本期關注

Focus
焦點

Case Study
案例研究

News
動態透視

Institutional Investors
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

Index & Exchange Rates
索引及匯率

 

The Equation

A profile, unseen before, is taking shape in the China fund pool. Since the beginning of the year, there have been a string of announcements of the launches of China-focused funds. The Carlyle Group’s (‘Carlyle’) first two joint venture renminbi funds captured global headlines. At the same time, the private equity arm of Bank of Communications Co., Ltd. (交通銀行股份有限公司) made known its intention to raise a US-denominated fund with a target size of up to US$500 million. This also coincided with reports suggesting that China Science & Merchants Capital Management Co., Ltd. (中科招商資金管理公司) is to recruit Mr Robert Hanson to raise a US-denominated fund. Ironically, while foreign firms are drawing up blueprints to manage yuan funds, firms sponsored by domestic institutions are courting allocations from foreign institutions. It is an unprecedented change in the of China private equity market’s fund raising dynamics.

The Past and Present
Once, it was non-yuan funds raised and managed by foreign fund management firms that dominated China’s fund pool profile. But the equation has changed. Domestic firms are now commanding the fund raising show. The 2009 fund pool make-up was the first and the most compelling development offering evidence of this paradigm shift. Of the US$9.6 billion recorded during these 12 months, renminbi funds accounted for the lion’s share, at US$6.1 billion (fig. 1).

The developments in the first two months of the year further affirmed the rising prowess of domestic firms. While global institutional investors have shown signs of their readiness to make allocations as evidenced by the closings achieved by a number of funds since the beginning of the year, the names of foreign private equity firms were conspicuously absent. Instead, it is a star cast of local firms that have garnered overwhelming interest from global institutions.....

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Focus 焦點
The TDR Effect
Taiwan has worked hard to gain new listings

For the Taiwan Stock Exchange (‘TWSE’), its Taiwan Depositary Receipts (‘TDRs’) scheme has come a long way. Soon, the island’s bourse will celebrate a decade’s efforts at attracting Taiwan’s home grown, but listed abroad, companies to return to their home bourse. The TWSE has thus far successfully attracted 16 such companies. Together they have raised over NT$36.6 billion (US$1.1 billion). It was, however, only during the past 12 months that the TDR concept has taken off. In these 12 months, 13 companies issued TDRs on the Taipei bourse. As Taiwan greets a new lunar year, its TDRs have now become a main conduit connecting the island of Taiwan to other economies on the globe.

Political Boundaries Removed
Despite coming under different political regimes on the Greater China map, companies listed on the Stock Exchange of Hong Kong (‘SEHK’) have been most pragmatic in issuing TDRs in Taiwan. Of the 16 companies that have issued TDRs, ten of them are currently listed on the SEHK (fig. 8). Although the original intent was to attract Taiwan companies listed abroad to return to the Taipei bourse, TDRs have gained popularity with mainland China companies that have an interest in Taiwan. Solargiga Energy Holdings (陽光能源控股有限公司)(‘Solargiga’), the second largest solar energy company in China, issued its TDRs in December last year. Singapore-listed Oceanus Group Ltd. (‘Oceanus’), one of the largest on-shore abalone producers with its main operations in China, also joined the growing party of TDR issuers last December.

PE-Backed Companies
In the last month of 2009, four companies backed by private equity investors successfully issued TDRs on the TWSE. Together they raised an aggregate NT$5.4 billion. However, the performances have been mixed.

Among them, Oceanus, which had earlier received an aggregate US$37.2 million from both AIF Capital and Hupomone Capital Partners, has been the favourite. Since its listing on the last day of December, its share price has been on the rise, closing at NT$14.75 on the 26th of February, representing a 55.3% rise to its issue price.

Solargiga raised US$43 million from Baring Private Equity Asia back in early 2008 and enjoyed a one-week honeymoon with its investors before its saw its share price plunge. However, it has been able to sustain investors’ interest, as at the close of February its TDRs were trading around 16% over their offer price.

For Neo-Neon Holdings Ltd. (‘Neo-Neon’), which had enlisted Tsing Capital (青雲創投) as its investor last year, however, the first one month on the Taiwan bourse was a choppy period for its TDRs. After a week of surging share price, the latter’s movements began to show volatility. After a month of being quoted on the TWSE, Neo-Neon’s share price fell below its offer price. At the end of February, Neon Neo’s TDR price closed at NT$12.40, a 3.9% decline to its offer price.

Vietnam Manufacturing and Export Processing (Holdings) Ltd. (‘VMEPH’), invested by Merrill Lynch & Co., Inc., suffered the most. The first Vietnamese company listed on the TWSE, save enjoying a brief week of surging share price, after that never saw its TDRs rise. By the end of February, its price had dropped 23% since its TDR listing (fig. 9).

Comments
Currently there are 51 companies undergoing the pre-listing and consulting stage (第一上市輔導), as well as 17 listed and ready-to-be-listed enterprises. For companies that are intending to issue TDRs on the Taipei bourse, those in the food products segment appear to stand a good chance of gaining a warm reception. Of the NT$36.6 billion raised, this group of companies accounted for the lion’s share, at NT$22.3 billion. Last year, when Hong Kong-listed Tingyi (Cayman Islands) Holding Corp.（康師傅控股有限公司), a manufacturer of instant noodles and a bakery chain operator in China, decided to issue TDRs and raised NT$17.1 billion, it took the crown as the largest TDR issue in Taiwan. This was followed by the Hong Kong-listed Want Want China Holdings Ltd. (中國旺旺控股有限公司), a snack maker that raised NT$3.3 billion (fig. 10). Since Oceanus, another food product company, issued its TDRs, it is among one of the two most heavily traded stocks on the Taipei bourse, with 5,344,000 shares changing hands on 26th February alone. By comparison, integrated healthcare services provider and medical consumables manufacturer Medtecs International Corp. Ltd., whose TDRs were listed last October, saw 2,195,073 of its shares transacted on the same date (fig. 11).

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Divestments 資金套現
Telling Signs
Initial Public offerings receive tepid response from investors

The Year of the Tiger roared into China’s calender, but it failed to shore up investor interest in initial public offerings (‘IPOs’). On 19th February, Ruinian International Co., Ltd. (‘Ruinian’) became the first new public listing on the Greater China stock market since the commencement of the Chinese lunar year. It was also backed by private equity capital. Despite having priced its offer at HK$3 (US$0.39) each, towards the lower end of its IPO range, Ruinian’s debut could not reverse the recent trend in which investors have displayed subdued interest in IPOs. On its first day of trading, Ruinian’s shares closed 7.4% lower than its offer price. With SEHK being the best performer in the 2009 IPO year, the listing of Ruinian portends a period of cool reception for future IPOs.

Compared to other companies backed by private equity capital, Ruinian has been fortunate to manage to make its public debut. In the USA, since December last year, four companies that had previously raised capital from private equity or venture capital investors had to postpone their listing plans. They were Trony Solar Corp. (創益科技發展有限公司)(‘Trony Solar’), Daqo New Energy Corp. (‘Daqo’) and Telegent Systems Ltd. (‘Telegent’), with JinkoSolar Holding Co. Ltd. (晶科能源控股有限公司)(‘JinkoSolar’) being the latest to join this list (fig. 26).

With the exception of Telegent, all three other companies that chose “no show” for their public debuts are engaged in solar energy products. The development reflected that investors are holding off their interest in alternative clean energy companies until those already listed on the US bourses demonstrate their ability to yield profits.

Currently, there are eight solar energy companies listed on either NYSE or NASDAQ. With the exception of Trina Solar Ltd., which is reporting positive earnings, and was backed by Milestone Capital Management Ltd. (上海麥頓投資咨詢有限公司), the books of the others have been in the red, including Suntech Power Holdings Co., Ltd.(尚德太陽能電力控股有限公司), China’s largest solar energy company (fig. 27). At the end of 19th February, based on its closing share price of US$24.41, Trina Solar shares were trading at a price earnings ratio of 31.66 times.

Fortunately for the investors of Trony Solar, Daqo and JinkoSolar, time remains on their side, as the respective investment holding periods of these companies have been relatively short. Both Trony Solar and JinkoSolar first raised funds from private equity investors in the third quarter of 2008, while that for Daqo was November last year.

However, investors of Telegent are racing against time. The fabless semiconductor company first raised funds from its investors well before 2007. The latest round of known fund raising took place more than 40 months ago in late 2007. Telegent’s failure to become a quoted stock on the US bourse could only drag down the expected internal rate of return from this investment.

As the world’s leading economies prepare to conclude their economic stimulus measures implemented in early 2009, the global economy will face a period of adjustment. It will take a crystal ball to determine the right timing for an IPO.

Editor’s Note: In the Chinese Lunar New Year calendar, 12 animals have been chosen to symbolise each year. For the current year, it is the year of the Tiger.

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