US Private Equity Firms Invest In Chinese Companies
US private equity funds are stepping up their investments
into China, with an estimated US$1.2 billion going into
the country in the first six months of 2004. This follows
on the news that the leading buy-out firms are making
record payments to their partners.
Since private equity funds do not publicly disclose their
investment strategies and performance, it is not possible
to find out exactly where they are making their money,
but it is safe to say that only a small portion is being
made in China. Carlyle made a record payout of US$6.6
billion, and KKR made a record payout of US$9 billion
in the past 18 months. Recently, Carlyle has been aggressively
investing in Chinese companies.
The main impediments to investment in China have been
a lack of clear information for making business decisions.
There is a serious lack of business people who know the
language, and are well-connected. Lately though, private
equity funds have been going in even when they have a
shortage of reliable information, fearing that they will
be late.
The competition has become so intense that Chinese companies
seeking investors often find that they are getting competing
offers from non-Chinese investors. This situation did
not occur until comparatively recently.
Earlier this year, Wall Street sentiment turned against
Chinese companies' IPOs because of doubts about their
financial statements. Now, the trend is to non-IPO exit
strategies, including reverse mergers and M&As in
China.
Compared to their overall investments, Carlyle has invested
only US$150 million in China. Of the 10 biggest buyout
companies, only two have invested in China.This suggests
that there is still considerable room for more investment
in the country's companies.
While financial information is still hard to come by,
the situation is getting better, and some Chinese companies
are adjusting to the reporting requirements of western
investors.
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