Funds News
- Chinese SMEs offer opportunities for global PE funds
Date: 8-Jun-2007 Sources: (People's Daily)
Global private equity funds have a wealth of opportunities in China, where more than 40 million small and medium-sized enterprises are in dire need of capital in a booming national economy.
'We've been doing PE investment in China for 25 years. We're successful and the return is quite satisfactory,' said Robert A. Theleen, chairman of US-sponsored Chinavest merchant bank.
The big market and fast-growing enterprises with considerable potential are attractive to global investors, said Theleen, who is attending the ongoing China International Private Equity Forum in this port city of northern China.
With offices in San Francisco, Shanghai, Beijing and Hong Kong, Chinavest operates as a financial intermediary and a principal investor to assist foreign and Chinese companies, private equity funds and other investors evaluate and execute cross-border transactions.
More than 40 million small and medium-sized enterprises are registered in China, accounting for 99.8 percent of the total number of firms, according to Tianjin Mayor Dai Xianglong. An active economic force, they contribute 50 percent of the country's tax revenue, said Dai, former governor of the People's Bank of China.
Compared with big state-owned enterprises, small and medium-sized businesses have trouble getting bank financing.
PE funds, a key financial channel in western countries, are becoming more and more popular in China. Statistics show that 75 global PE funds had poured nearly 13 billion US dollars into 129 Chinese companies by the end of 2006. During the first quarter of the year, 17 Asian PE funds raised a total of 7.6 billion US dollars in the country, more than three times the amount in the same period last year.
Measures have been taken to eliminate some legal barriers and improve the financial systems in an effort to build a multi-layer capital market with the active participation of PE funds, said Wu Xiaoling, deputy governor of China's central bank, at the three-day forum which started on Thursday.
'If you want to make money, you must come to China, otherwise you will be left behind,' said Yukuo Takenaka, president and CEO of an investment banking and consulting company with eight offices in the United States and Asia. He said he met a Chinese firm specializing in smart technology at the forum. It may take six to eight months to evaluate its product, management, accounting and other factors.
'We want to make sure that our investments are safe and have high returns,' said Takenaka.
The world's top four PE investors -- Black Rock, Carley Group, KKR, and Texas Pacific Group -- have set up offices in charge of China business. Out of the 48 PE-funded domestic companies registered in 2005, 20 reported a high return of over 200 percent.
PE funds are transferring investment from IT sectors to traditional industries including energy, mining, and logistics. Service and bio-medicine sectors are also getting attention.
The PE-themed forum, the first of its kind in China, provides face-to-face opportunities to more than 70 global PE funds, intermediaries and investment companies from 17 countries such as the United States, Canada, Britain and to match with potential target companies from China's manufacturing, IT, real estate, retail and whole sale, energy and resource development sectors.
'Forums like this are a quick way to collect information from a lot of Chinese firms,' said Graham Riley, investment associate with Jordan Company (China). 'Some of them are interesting.'
The US-sponsored firm has invested in 14 projects in China sine 1995 and plans to inject 500 to 700 million US dollars over the next seven years.
However, Henry Kravis, a founder of KKR, has pointed out that PE investors still have a lot of work to do in an immature financial market that lacks professional management personnel. Foreign PE funds need to spend time getting to know the local context, he said.
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