PRINT THIS PAGE Test of strength: exit performance of China portfolio comes under test16/04/2008. Source: Asia Private Equity Review (APER).
It was a bleak first quarter for China investors. The Shanghai Composite Index has lost more than 34% of its value during the first three months of the year, its worst slump in 15 years. During the same period, Hong Kong’s Hang Seng Index also recorded a drastic slide by 17.85%. With initial public offerings and sales of shares on the public market (‘public offering route’) being the principal source of realised capital for private equity investors, the prevailing stock market condition has an immediate impact on exit performance of China portfolios, according to Asia Private Equity Review (APER). During the past few years when the global, and particularly the Greater China stock market, has been enjoying an unprecedented rally, the public offering route held the key to China portfolio returns. In 2006, over US$3.3 billion of capital has been returned by companies with principal operational revenues in China that were backed by private equity investors. Of this, US$2.8 billion or 82%, was derived through the public offer route. In 2007, this divestment avenue accounted for US$3.0 billion, or 83%, of the year’s US$3.7 billion realised capital. The figures underscore the paramount importance of a healthy and vibrant stock market movement for those investors with China portfolios (fig. 32).
Even though the A-share market was one of the best performers during 2007, sombre reality now faces some of the investors that had earlier joyfully toasted the successful initial public offerings of their respective companies. Among them, China Pacific Insurance (Group) Ltd. (‘China Pacific Insurance’), which was listed in early December on the Shanghai Stock Exchange, has become the biggest casualty of the prevailing sell-off in China’s A-share market. Its share price has fallen by over 43% since it made its illustrious debut. On 28th March, the share price of this third largest insurer in China closed at 27.57 yuan (US$3.93), compared to its offer price of 30 yuan. The Carlyle Group (‘Carlyle’) can only hope the prevailing negative market sentiment will soon dissipate.
Between 2004 and 2006, Carlyle and Prudential Financial Holdings committed an aggregate US$735 million to the insurer.
In a sharp contrast to the past, the roaring first day trading success of companies is no longer the common story. In early March, when Honghua Co. Ltd. (‘Honghua’), backed by Carlyle, iD TechVentures and the Netherlands Development Finance Co. (FMO), went public, its first day share price closed at an 8% discount to the offer price. In late March, when Solargiga Energy Holdings Ltd., to which Baring Private Equity Asia had made a commitment, made its debut, its share price closed at HK$2.93, a cent above the offer price of HK$2.92.
As private equity -backed companies have decided to shelve their initial public offering (‘IPO’) plans, the number of IPOs in the first quarter of 2008 became the worst since the fourth quarter of 2006, falling to six (fig. 33). The winners are those that can weather the current stock market blizzard.
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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