Related News

Home » Business » Economy

Venture capital primed to make China comeback

ROCKLEY Group, a United Kingdom-based investment fund, recently announced a partnership with the government of Shandong Province to raise US$100 million for technological development of energy, health care and other sectors in China's east coast.

The economic slowdown has diminished the level of private equity and venture capital investment, but the Rockley commitment is a sign that government attempts to woo back funds with wide-reaching market reforms are starting to pay off.

"The government has attached more importance to venture capital and private equity firms with the announcement of a stimulus package to support 10 key industries," said Zero2IPO Research Center, a Beijing-based investment consulting company, in a recent report.

Private equity funds raised US$500 million in the Chinese mainland in the first quarter of this year, a drop of 97 percent from a year earlier, according to Zero2IPO. In the first three months, those firms invested US$470 million in 19 projects, the report said.

Still, many believe that China will weather the global downturn better than others. China is targeting 8 percent economic growth this year, a sign to many analysts that the nation is poised to power ahead while the developed world struggles.

Those expectations whet the appetite of funds that seek profits by investing in start-ups and other innovative companies that show strong growth potential, then spinning them off on capital markets.

"There is continuing strong demand for sustainable technological solutions to support economic growth in China," Andrew Rickman, chairman of the Rockley Group, said at a signing ceremony in Jinan, Shandong's provincial capital.

Science partner

The fund is partnering with the Shandong Academy of Sciences and Shandong High-Tech Investment Corp, both government-owned entities. Rockley and Shandong High-Tech Investment Corp have each committed to provide 10 percent financing to the fund.

The rest will come from institutional investors. Shandong High-Tech Investment Corp has already taken four companies to market since it was founded in 2000. Part of Rockley's participation will be providing advice on initial public offerings.

Rockley's timing comes as Chinese regulators contemplate lifting a ban on new share sales imposed last year after mainland stock markets tanked. The government is also moving toward the launch of a new Nasdaq-style Growth Enterprise Market so start-up companies can list.

Rickman said the initiative in Shandong, a province of 94 million people with a reputation as an innovator in Chinese enterprise, will be just the start of the Rockley Group's investments in China.

His company isn't alone in wanting to tap opportunities in eastern China. Apax Partners, Europe's largest private equity firm, launched its first Chinese mainland subsidiary in April in Shanghai.

The firm, which oversees about US$40 billion, plans to invest about US$10 billion in the next two to three years, and company officials said they expect a large part of that sum will target China.

"Our targets include helping companies with strong potential to develop into global leaders and attracting high-end asset-management companies to Shanghai," said Richard Zhang, head of Apax China.

Gregory Becker, president of Silicon Valley Bank - whose clients comprise half of all venture-backed companies in the US, according to the company's Website - said last month in Shanghai that 25 percent of all venture capital in the world will be invested in China in subsequent years.

Fang Xinghai, director of the Shanghai Financial Services Office, said last month that the city will encourage overseas private equity firms to set up subsidiaries or joint ventures in Pudong New Area in eastern Shanghai. Policies related to that strategy will be published soon.

Tough environment

Still, the investment environment remains tough. The government suspended new share sales last September after the benchmark Shanghai Composite Index dropped nearly 70 percent, narrowing exit channels for venture capital and private equity firms.

"Time is needed for the equity market to heat up as it is unclear when new share sales will resume and a growth enterprise board will be launched," Zero2IPO research said.

The securities regulator has indicated that the resumption of IPOs is around the corner. The China Securities Regulatory Commission published proposed new rules on share sales last month and said it will resume listings immediately after public comment is collected and assessed, and final rules formalized.

Meanwhile, the commission is also moving forward on providing a framework for the new Growth Enterprise Market. It implemented guidelines for the market on May 1.

Based in Shenzhen, the market is being patterned after New York's Nasdaq, with an emphasis on smaller, cash-strapped technology companies that show solid growth potential.

It will allow approved companies to list with lower capital thresholds than the main bourses in Shanghai and Shenzhen.

"It's a good message for the venture capital and private equity industry and a milestone in Chinese capital markets," said Zheng Xingguo, research director at Zero2IPO. "We've been waiting for this for a decade."

In the past, China's start-ups, mainly high-tech companies, have had to stage initial public offerings on the Nasdaq or similar markets in Hong Kong and Singapore because they couldn't meet listing requirements on China's main boards.

Venture capital firms will benefit directly from the new board because share sales give them a way to exit all or part of their investment in a company they have nurtured.


Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.

沪公网安备 31010602000204号

Email this to your friend