Origo Partners shows that risky investments can work, provided the underlying business rationale makes sense and the chief executive knows what he (or she) is doing.
Midas Extra recommended this company in March, when the shares were 18p. At the time, we said the stock was on the adventurous side but suggested it had certain attractive attributes. Today the shares are 28p so they have risen 55 per cent in just three months.
The increase reflects some significant developments, including a successful £21 million fund-raising exercise, completed only last week, in which new and existing investors were invited to subscribe for shares at 25p each.
Origo raises money from big institutional investors and creates funds which buy small to medium-sized companies that are either based in China or sell to China. The company helps these businesses to grow with a view to selling or floating them at a profit. Until now, Origo has only been able to seek investors from outside China and has only been able to float companies outside the country too.
Now, however, chief executive Chris Rynning has gained permission from the Chinese government to develop a domestic fund – the Origo China Sustainable Development Fund. Chinese institutions will be able to invest directly in this fund and the companies Origo buys through the fund will be able to float on the domestic Chinese stock exchanges.
This is almost certainly the first fund managed by a non-Chinese company to be given this kind of freedom and it should substantially enhance Origo’s ability to find investors and, more importantly, good companies to invest in. Many Chinese investors and entrepreneurs are keen to keep their money at home and Rynning’s new fund allows them to do just that, while benefiting from external expertise and guidance.
Rynning has already unearthed several interesting opportunities for the Sustainable Development Fund and has a number of other irons in the fire, hence his recent fund-raising venture.
Origo is putting $10 million into the Sustainable Development Fund and the Xinxiang Municipal Government (a regional government body) is investing $18 million. Chinese and international investors should take the fund to $75 million over the next few months and the company is already talking to the Chinese authorities about similar domestic funds in other industries.
Midas verdict: China’s growth potential is widely discussed but Chris Rynning is better placed than most businesspeople to know what is really going on in the People’s Republic, as he has worked there for 15 years. Origo shares have done extremely well lately and investors who bought in March would be well-advised to sell 30 to 50 per cent of their stock just to hedge their bets. But Rynning is on a roll and, if his plans succeed, the shares should continue to do well. Hold at least half.