PE firms’ China fundraising gathers momentum

PE firms’ China fundraising gathers momentum

The amount of renminbi denominated funds being raised by private equity firms has jumped by over half this year, following a change in China’s investment laws in March aimed at stimulating foreign investment in the country.

So far this year 18 funds have been marketed to investors with an aggregated value of RMB 85.3bn (€10.2bn), a 67.9% increase on the 12 funds out in the market at the start of 2010 valued at RMB50.8bn, according to data provided by Preqin.

And Ian Lewis, a partner at law firm Mayer Brown, expects even more funds to be established over the next 12-24 months.

He said: “We are now seeing investors focus on RMB funds which offer a number of exciting new opportunities for local investors, simpler registration rules, eliminate most foreign exchange issues and involve fewer regulatory hurdles.”

China’s revised laws on overseas investment, which had been under discussion since August 2009 and came into force in March under the ‘Measures for the Establishment of Partnership Enterprises in China’ initiative, mean international groups can now set up onshore investment vehicles in China’s renminbi currency.
In an interview with the McKinsey Quarterly – a quarterly business journal by management consultancy McKinsey & Company – in May, David Rubenstein, of The Carlyle Group said buyout firms will try and deploy as much money as possible in China because of the opportunities for growth.

He said: “So I don’t think you can deploy too much money in China. And the competition is not just from global private equity firms or American private equity firms investing there. Indigenous Chinese firms are probably now our biggest competitor in China.”

Carlyle has 45 full-time Chinese locals working in the country investing from three regular funds – a buyout fund, a growth fund and a real estate fund – as well as two renminbi funds.

Chris Ryning, chief executive of private equity investor Origo Partners, thinks the additional liquidity in the Chinese IPO market compared with London and New York is another driving factor behind firms wanting to set up funds in the country.

He said: “Chinese companies are not primarily interested in listing abroad, it’s the Chinese IPO market they want to tap into, an additional driver for that is also the price points. Companies price much higher on the Chinese market than they would in a comparable IPO in London or New York, and the growth multiples are a lot higher too.”
Origo Partners, did an equity placing on London’s junior market Aim on June 11 raising $30m (€24m), has completed three deals in China in the past week. The London-based firm made an investment of up to $6.65m for a 20% stake in Chinese recycling firm Jinan Eco-Energy Technology.

It will also invest $5m for a 23% stake in Mongolian mining exploration firm Bumbat Consolidated and take a 10% stake in copper and gold explorer Huremtiin Hyar for $300,000, with an option to invest $3.5m more to raise its stake to 70%.

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