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The conduit: private equity serves as a link for Taiwanese companies to better access the mainland17/09/2008. Source: Asia Private Equity Review (APER).
 It will soon be a half year since Taiwan’s Kuomintang returned to governing power over the island. While the dynamic President Ma Yingjeou repeatedly warned that it will be a Herculean task to close the bitter political divide that has separated the island from mainland China for more than six decades, Taiwan’s business community is eager to integrate with their mainland counterparts. As political history in the Greater China region enters a new era, and economic assimilation begins to gather pace, private equity capital is playing a crucial role as a bridge between enterprises on both sides of the Taiwan Strait, according to Asia Private Equity Review (APER).
When Taiwan’s Fubon Bank achieved a landmark breakthrough to become the first financial institution from the island allowed to take up an equity stake in a mainland Chinese bank, the Xiamen City Commercial Bank, it paved the road for others to follow in its footsteps. Among them are two of the banks that had earlier enlisted private equity investors as advance means.
E. Sun Financial Holding Co., Ltd. (‘E. Sun’) had been vying for Morgan Stanley Private Equity Asia’s capital injection when it invited the foreign private equity investor to commit US$200 million to its operation. It was also hoping to leverage the private equity firm’s affiliation with the Zhuhaibased commercial lender, Nan Tung Bank, to access the mainland market.
In late 2006, Morgan Stanley took control of Nan Tung Bank from Bank of China Macau. The acquisition would allow the Wall Street investment banking firm to offer commercial banking services, in addition to its existing securities business in China. Nan Tung Bank was also among one of the very few banks that could offer foreign-currency deposit and lending services. It was furthermore allowed to provide yuan-based services and provide financial products such as derivatives to mainland firms.
In mid August, at its board meeting, E. Sun revealed its intent to partner with Morgan Stanley Private Equity Asia to either take up a stake in Nan Tung Bank, or form collaborative efforts with the mainland bank.
Taishin Financial Holding Co. (‘Taishin’), the first financial services company in Taiwan to invite foreign private equity capital, is also known to be positioning itself to enter the market across the Strait. In early 2006, it raised NT$27 billion (US$844 million) from TPG’s Asia arm (then known as Newbridge Capital). The global private equity firm is also a controlling shareholder of Shenzhen Development Bank, with which Taishin could also partner in order to venture into the mainland market.
Significantly, after having enlisted TPG and then added Soros Fund Management LLC and Nomura Group as its foreign shareholders, in its latest round of fund raising exercises, Taishin has decided to sell 450 million shares to an investor group coming from the People’s Republic of China, instead of an entity from the West.
The ability to have a platform that provides investors with both Taiwan and mainland China assets has become such a powerful story that some mainland companies are entertaining the idea to seek public listings in Taiwan. The Guangzhou-based Rock Mobile Corp. (‘Rock Mobile’) could become the first subsidiary of a Taiwanese company, backed by private equity, that shall be seeking a listing status on Taiwan’s over the-counter market.
Established in mid 2002, Rock Mobile’s parent organisation is the Rock Group, which is headquartered in Taiwan, and a leader in Asia’s music production industry. Rock Mobile is the digital music service and distribution arm of the Rock Group. It counts Legend Capital, Goldman Sachs, iD TechVentures, Walden International, Nippon Venture Capital, Nikko Antfactory and Siemens as its investors.
Uni-President Enterprises Corp. (‘Uni-President’), which made its name in Taiwan as the island’s leading food manufacturer, has successfully removed political barriers in the launch of its first corporate venture fund. In May, Uni-President announced the formation of China F&B Venture Investments, a 616.5 million yuan (US$89.9 million) private equity fund that will primarily make investments in companies involved in the food and beverage industry in China. Significantly, it has enlisted Suzhou Ventures Group, one of the best known names in China’s institutional community, as one of its investors. With the Suzhou government’s investment arm behind this fund, Uni-President has anchored not only an important investor in mainland China, but has also mitigated potential and unquantifiable risks there (fig. 26).
Since last year, when the tides turned against Taiwan’s outgoing Democratic Progressive Party and, in anticipation of an improved cross Strait relationship, Taiwan-based investors, such as iD TechVentures and Whitesun Equity Partners have been actively deploying capital in companies based in mainland China. Likewise, foreign investors were also uninhibited in allocating capital to affiliates of Taiwan operations that are based inside the People’s Republic of China (fig. 27). There are, furthermore, signs that traffic on that stretch of water that separates Taiwan and mainland China is getting busier. In mid August, Haier Group, China’s leading home appliances home manufacturer, announced its plan to set up an office in Taiwan by September. SOHO China Ltd., one of China’s biggest real estate developers, had also indicated its intent to acquire real estate assets in Taiwan. As Cross Strait activities accelerate, private equity has firmly defined its role.
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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