LONDON (Dow Jones)–Origo Partners PLC (OPP.LN) Friday said it plans become the latest private equity company to team up with a local Chinese government to raise yuan-denominated funds, adding the venture with the Xinxiang municipal government is unlikely to be the last it will launch.
The China-focused private equity firm want to invest in local deals and gain access to China’s growing number of institutional investors. Its new fund follows moves by private equity firms Blackstone Group LP (BX) and Carlyle Group LP in August and January, respectively, to launch government initiatives for yuan-denominated funds.
Increasingly, Chinese entrepreneurs and business owners are reluctant to receive investments in their firms in foreign currency, Origo Partners Chief Executive Chris Rynning told Dow Jones Newswires, due to the difficulties this can cause when looking to publicly list in China.
“You expand your universe of investment opportunities [with the local currency],” he said. “It’s a competition issue.”
The Origo China Sustainable Development Fund, which Origo will manage, will have an initial target to invest $75 million, of which $18 million will be an anchor investment by the Xinxiang municipal government.
Rynning said Origo Partners would put in a proportion of the capital for the fund using some cash from its balance sheet while around a third of the fund would hopefully come from Origo shareholders and the wider market.
The fund will target Chinese companies in sectors such as renewable energy, electric vehicles, waste recycling and sustainable agriculture, and will be registered in Xinxiang, a city of about 6 million people.
The area was set up at a military hub in the 1950s, Rynning said, and has been an area known for the research and development of battery manufacturing for several decades. Currently, there are more than 200 registered battery manufacturers alone in Xinxiang and industries such as electric vehicles, energy storage and automotives are flourishing.
Rynning said the fund aims to launch this year, hopefully making its first investment in the third quarter, but Rynning said this is likely to be the first of several such initiatives.
Origo is already in talks with other municipals, he said, and would also be interested in expanding into funds to invest in sectors like mining, agriculture and consumer goods.
Analysts at Liberum said the fund will give it access to the best deals in this sector, as well as giving it management fees.
Keeping a “buy” rating, Liberum said yuan-denominated investments may also come with a currency advantage as it expects the yuan to appreciate against a number of currencies in the medium to long term.
At 1104 GMT, shares in Origo were up 0.5 pence, or 1.9%, at 27.5 pence, while the wider AIM market was up 0.3%.
Company Web site: www.origoplc.com
-By Rachael Gormley, Dow Jones Newswires; 44-20-7842-9308; email@example.com