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- Two brokers to do private equity deals
Date: 13-Sep-2007 Sources: (Shenzhen Daily)
THE securities regulator cleared two domestic brokerages to make direct equity investments, paving the way for brokerages to get back in the private equity business.
The approvals for China International Capital Corp. (CICC) and CITIC Securities Co. mark the lifting of a ban on domestic brokerages making private equity-style direct investments. They also signal the government's increasing comfort with letting domestic institutions take the lead in restructuring domestic firms and listing them on domestic exchanges.
'The Chinese Government now views venture capital and private equity as a real industry sector and they're trying to develop their own domestic industry,'said Rocky Lee, partner at DLA Piper in Beijing.
For years, private equity investing in China had been dominated by foreign concerns like Carlyle Group and TPG, the former Texas Pacific Group. Now China is turning to its strongest domestic securities firms, flush with cash from a booming domestic stock market, to compete against those foreign players.
However, the initial steps by domestic brokerages into private equity are unlikely to resemble those of their foreign counterparts.
For example, CITIC Securities will create a 831 million yuan (US$109.92 million) wholly owned company using its own funds to take direct equity stakes, it said in a statement Tuesday. Private equity firms typically raise funds from limited partners, investing those funds on behalf of investors rather than using their own funds.
CITIC's direct investment unit, to be called Golden Time Investment Co., will focus on buying stakes in companies that are preparing to launch initial public offerings (IPOs).
Pre-IPO financing in China has been lucrative for foreign investors, especially those that bought into the biggest State banks ahead of their listings over the past several years. Pre-IPO investments also require less retooling of operations at the target company, offering CITIC a route for gaining experience before taking on more difficult projects.
CICC received approval Monday to make direct equity investments, said Tracy Hu, a Beijing-based spokeswoman for the brokerage. She said CICC is still considering details of its plans for the venture.
The government's willingness to turn to domestic companies for the delicate task of restructuring companies is a vote of confidence in their improved ability to manage investments since many securities funds went bust after making reckless investments in the late 1990s that soured after the stock market tanked in 2001.
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