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Harvest in China09/11/2005. Source: Asia Private Equity Review.
 Exit records in Greater China continue to dominate the Asian private equity scene, finds APER. In this feature they examine the healthy state of the Chinese private equity market and hang some details on the current harvest.
Exit records in Greater China continue to dominate the Asian private equity scene The largest global public offering of the year took place in Hong Kong, the financial centre of the People's Republic of China. In late October, China Construction Bank made its debut on the Hong Kong Stock Exchange and raised US$8 billion.
The bank's initial public offering attracted record demand for new listing shares with applications for more than US$80 billion of its shares. The listing of China Construction Bank testifies to foreign investors' rising level of confidence in the future prospects of the China market.
For global private equity players, China has proven, beyond doubt, that these are good reasons to be sanguine as evidenced by the recent divestment record.
The International Finance Corp. ('IFC') is one of the very first to quash sceptics' queries as to the ability of China's banking sector to deliver profitable returns to its investors. The private sector investment arm of the World Bank has recently sold a portion of its holdings in Nanjing City Commercial Bank to PNB Paribas when the latter sought a 19.7% equity position in the city municipality bank. Based on the transaction sum of US$87 million that the French Bank has agreed to pay, IFC would have received US$45.3 million.
In mid 2001, IFC committed an approximate US$27 million in taking up a 15% equity position in Nanjing City Commercial Bank. It has sold 10% and continues to hold 5% of the Nanjing City Commercial Bank's shares.
However, with investors' attention keenly focused on China's banking sector two consumer-related companies backed by private equity capital registered mediocre share performances during their respective debuts on the Hong Kong Stock Exchange ('HKSE').
China Paradise Electronics Retail Ltd. ('Paradise Electronics'), backed by funds managed by Morgan Stanley Global Emerging Market Inc., put on the public-listing cloak in mid October. One of China's leading electronic retailers, Paradise Electronics offered 458.8 million shares at HK$2.25 (US$0.29) each. Although its shares were 134 times over-subscribed, on its first day of trading Paradise Electronics' share price only registered a modest gain of 5.56%. Nonetheless, it raised HK$1.02 billion.
In January this year, Morgan Stanley Global Emerging Markets Private Investment Fund, which is managed by Morgan Stanley Global Emerging Markets Inc. and CDH China Fund that is managed by CDH China Holdings invested US$50 million in Paradise Electronics for a 27.36% equity position. Neither investor disposed of any shares at the electronics retailer's initial public offering.
Sharing a similar debut experience as Paradise Electronics was the Warburg Pincus-backed Kasen International Holdings ('Kasen'). Its first day of trading failed to stir much excitement from investors. Kasen is China's largest leather producer. It offered 304.22 million shares to the public at HK$2.55 each and raised HK$958.29 million. Its share price closed at HK$2.37 on its first day of trading, a 6.68% decline on its offer price.
Warburg Pincus first committed US$22 million in Kasen back in 2003. It subsequently increased its exposure in the tannery maker by committing a further US$15 million in January 2004. In the initial public offer last month, Warburg Pincus sold 71 million shares for an approximate US$23 million. The partial divestment leaves the private equity firm with an 18.44% stake in the company.
Also seeking a listing is Goldman Sachs' China Haisheng Juice Holdings ('China Haisheng'). The producer and distributor of apple juice concentrate with operations in several provinces in China, has recently launched an initial public offering in Hong Kong. It is selling 305.6 million shares priced at HK$0.83 each. The offer included 61.1 million shares held by several founding shareholders who took the opportunity to reduce their holdings.
Goldman Sachs' investment in the fruit juice company was made in January this year through a number of funds under its management. A total of US$20 million was invested in a convertible bond which was converted into shares in the company at an effective price of HK$0.64 each prior to the offer.
No shares were divested by the funds in the offer, resulting in a 20% stake in China Haisheng subsequent to its listing (fig.15).
Asia Private Equity Review (APER) is the foremost voice on matters related to private equity/venture capital in the region. Well-recognised as being the singular source for accurate and timely news, in-depth analysis and global perspectives, APER is published by the Hong Kong-based Centre for Asia Private Equity Research. For further information please visit their website at www.asiape.com or email them at info@asiape.com
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