Private Equity Is Coming of Age In China Market
When J.P. Morgan Partners, then known as Chemical Venture Group, spent $10 million to buy 20% of a Chinese wood-products company in 1995, such investments by financial investors were rare. Finding a company worth investing in was difficult, as was buying a significant share -- not to mention cashing out.
The company, Plantation Timber Products, at the time wasn't particularly impressive either. It made thick fiberboard in Leshan, a remote town in China's western Sichuan province some five hours by bumpy road from Chengdu, the nearest major city. Now, though, a highway has cut traveling time to 90 minutes and Plantation Timber is churning out high-quality boards that go into furniture, as well as wall and floor panels. Its products are sold both abroad and to busy property developers across China through a national distribution network.
On June 21, J.P. Morgan sold its stake in Plantation Timber to Carter Holt Harvey Ltd., the largest New Zealand forest-products company, for $134 million. The sale is one of several this year for foreign investment funds in China and comes just as Goldman Sachs Group Inc. and Morgan Stanley have presided over the Hong Kong listing of Ping An Insurance Co., China's third-largest insurer, which the two firms invested in 10 years ago. That deal gives the two initial investors a return of 15 times their original investment.
After a decade of disappointment and delay, private equity in China is finally coming of age. "For those who have patience, there are more opportunities, even though it is still hard," says Henry Cornell, co-head of private equity world-wide for Goldman Sachs.
Private-equity firms raise money from institutions and wealthy individuals, and use the money to purchase companies, take strategic investment positions or make venture-capital investments.
Two developments are making private equity in China a more attractive proposition. For one thing, exiting an investment through a lucrative sale to a strategic investor or a stock-market listing has grown easier. In addition, government authorities are now more flexible in agreeing to attractive terms. Newbridge Capital Ltd., for example, recently purchased a large stake in Shenzhen Development Bank Co., a deal that gives the private-equity firm, an affiliate of Texas Pacific Group and Blum Capital, control over a Chinese bank, the first time that has happened. In coming weeks, private-equity firm Carlyle Group says it is aiming to finalize a $400 million investment in China Pacific Life Insurance Co.
"Those two deals will be looked at as a milestone," assuming the Carlyle deal goes through, says Howard Chao, a lawyer who commutes between Shanghai and the U.S. West Coast for O'Melveny & Myers LLP. "They signify the opening gun for private equity in finance in China."
Carlyle alone intends to spend almost $1 billion this year in China. That is about as much as all private-equity funds spent last year in China, according to data compiled by Warburg Pincus LLC. It is also a small fraction of total direct foreign investment in China of more than $50 billion last year, underscoring just how difficult it has been to do deals there.
The market still faces substantial hurdles. Exit strategies remain a challenge given China's underdeveloped financial markets. That contrasts with most markets, where private equity started long after financial markets had matured. And there are still legal questions. When Julia Huang, founder of PRCEDU Technology Ltd., an online educational company, was trying to raise money, she gave up on one potential investor who wasn't familiar with China and couldn't accept the legal uncertainties.
Also, most deals remain small, a frustration for the largest investors. "We like to do deals where we can make a difference to the bottom line of Goldman Sachs," says Mr. Cornell. "But in China, we are looking at $20 million deals. And they aren't bargains, either."
Still, as conditions for private equity in China have improved, so has the choice of investment possibilities. In the past, investors could do little more than inject capital into ailing state enterprises or form joint ventures with partners who often stole from the joint venture to subsidize their own wholly owned operations. Now, outside investors can find local entrepreneurs who have started up their own companies and, in many cases, manage them according to what they learned at business schools in the U.S. and Europe.
Such returnees speak the same language as their foreign investors while being able to find their way through a bureaucratic maze that still frustrates outsiders. Peggy Yu, a founder of DangDang.com, an Amazon lookalike, has an MBA from New York University and money from both Softbank Corp.'s Softbank China Venture Capital and Boston-based International Data Group Inc. Kewei Yang, armed with a Ph.D. from Johns Hopkins University in the U.S., is president and chief executive of Analogix Semiconductor Inc., has offices in Silicon Valley and Beijing, and is also backed by IDG.
Along with the returning top executives, there is now a whole generation of middle managers in China with extensive experience in the Chinese subsidiaries of Western multinationals.
"We see much better flow, with real companies and real deals" says Arnold Chavkin, chief investment officer at J.P. Morgan Partners, the private-equity arm of U.S.-based J.P. Morgan Chase & Co. "At the state and local government level, entities want to bring in foreign partners. They see foreign investors as a way to help them grow their companies faster."
Investors today scour China for opportunities not only in manufacturing but in a broad array of services that have recently opened up to cater to China's rapidly growing middle class.
Plantation Timber is an obvious play on the growth of the housing market in China. But the people who use its timber products aren't just in the big cities; even farmers in Sichuan are buying its products with cash generated from sales of cash crops such as asparagus, according to Cheng Zhang, a senior vice president at Plantation Timber. An investment Carlyle made in Pacific China Holdings Ltd., a department-store chain, is also paying off handsomely as China's middle class grows.
私人资本运营在中国市场峰回路转
当大通合伙人公司(J.P. Morgan Partners)，也就是后来的Chemical Venture Group当年斥资1,000万美元收购中国一家木材制品公司20%股权时，这样的金融投资者在中国还是寥寥无几。投资方很难找到一家值得投资的公司，要想收购投资对象的大量股份也毫不轻松，就更别提套现撤离了。
当年的国际吉象人造林制品集团(Plantation Timber Products, 简称：吉象木业)也是毫不起眼。这家生产厚纤维板的公司位于中国西部四川省的乐山，距离最近的一个大城市成都还有大约5小时颠簸的路程。不过，现在新建的高速公路已经将路程缩短到90分钟，吉象木业也开始出产高质量板材，用于制作家具，墙用板材和木地板等。通过一个遍布全国的分销网络，公司产品源源不断运抵全国各地业务繁忙的地产开发商手中，而且还远销海外。
大通合伙人公司今年6月21日将所持吉象木业的股份卖给了新西兰最大的林业产品企业卡达维公司(Carter Holt Harvey Ltd.)，售价1.34亿美元。这是今年外商投资基金在中国为数不多的几桩转手交易之一，与高盛(Goldman Sachs Group Inc.)和摩根士丹利(Morgan Stanley)承办平安保险(Ping An Insurance Co.)香港上市的时间恰好重合。平安保险是中国第三大保险公司，高盛和摩根士丹利10年前在平安保险的投资而今获得了15倍的回报。
经过长达十年的失望和进展不利，中国的私人资本运营终于迎来了柳暗花明的这一天。高盛全球私人资本运营部门联席主管亨利?康奈尔(Henry Cornell)说，虽说现在困难还是不少，但投资方越耐心机会就越多。
私人资本运营公司的运作方法是：将资金从机构投资者和富裕的个人投资者手中筹集起来，收购其他公司，或者进行战略性或风险投资。
两大因素给中国的私人资本运营增添了魅力。其一，将投资出售给某位战略性投资者攫取丰厚利润，或者公开上市已经变得越来越容易了。其二，政府机构也越来越灵活，更容易达成有吸引力的交易条款了。
以最近新桥资本(Newbridge Capital Ltd.)收购深圳发展银行(Shenzhen Development Bank Co.)大量股份的交易为例，Texas Pacific Group和Blum Capital的这家私人资本运营关联公司就获得了深发展的的控股权，这在中国大陆尚属首例。另一家私人资本运营公司凯雷投资集团(Carlyle Group)则表示，有望在未来几周签署向中国太平洋保险公司(China Pacific Life Insurance Co.)投资4亿美元的协议。
如果凯雷投资集团的交易进展顺利，“这两项交易将具备里程碑式的意义”，代表O'Melveny & Myers LLP.在上海和美国西海岸两地穿梭沟通的律师Howard Chao说，“它们标志著私人资本运营行业打响了大规模投资中国的第一枪。”
单单凯雷投资集团一家就计划今年在中国投资约10亿美元，以华平创业投资有限公司(Warburg Pincus LLC.)提供的数据计算，这相当于去年私人资本运营公司在中国全部投资的总额。但与中国去年吸引的外商直接投资总额500亿美元相比，也不过是沧海一粟。这种对比充分地体现了在中国进行私人资本投资的难度。
私人资本投资市场上的障碍不胜枚举。由于中国的金融市场不够成熟，要想收回战略性投资并不容易。华平创业投资有限公司中国业务主管孙强，这一点与其他国家大相径庭，那里的私人资本运营都是在金融市场充分发展成熟以后很久才开始的。此外，法律问题也不少。当弘成科技发展有限公司(PRCEDU Technology Ltd.)创始人黄波(Julia Huang)试图为她这家网上教育公司筹集资金时，她放弃了一家潜在的投资者，因为后者对中国市场不熟悉，对法律方面的不确定性也无法接受。
另外，许多私人资本的投资项目规模都很小，让大型投资者们倍感受挫。康奈尔就说，“我们希望做成的交易能推动高盛整体利润的增长，但在中国只能寻求小额交易，而且几乎没有讨价还价的余地”。
不过，随著市场环境的改善，可选的投资机会也越来越多了。过去，投资者或者向处境不佳的国有企业注资，或者与国内合作伙伴组建合资公司，但后者却往往将资金补贴到它们全资拥有的业务上去。现在，外部投资者可以与自行创办公司的当地企业家合作，很多企业家都是利用他们在美国和欧洲的商学院学到的知识来管理公司的。
这些海外归来的学子精通外语，可以同外国投资者顺畅沟通。他们还熟悉中国的国情，能够在让外国投资者常常碰壁的官场中游刃有余。当当网(DangDang.com)的俞渝(Peggy Yu)拥有纽约大学(New York University)的MBA学位，她创办的当当网与亚马逊(Amazon)类似，获得了软银中国风险投资(Softbank China Venture Capital)和波士顿的国际数据集团(International Data Group Inc.)的投资。Analogix Semiconductor Inc.的总裁兼首席执行长Kewei Yang拥有詹斯?霍普金斯大学(Johns Hopkins University)的博士头衔，他执掌的这家公司在美国矽谷和中国北京都有办事处，拥有国际数据集团等多位投资者的支持。
除了返回国内的企业高层管理人士，一大批具备丰富外企工作经验的中层经理人也已经在中国成长起来。
摩根大通(J.P. Morgan Chase & Co.)旗下私人资本投资业务首席投资长阿诺德?查夫金(Arnold Chavkin)说，现在具有实际意义的企业和投资交易越来越多了，从中央到地方的各级政府都希望引入外商合作伙伴，力图加快企业的发展。
目前，外国投资者在中国市场四处出击，寻找各类投资机会，不再仅限于制造行业，也包括各种最近开创的迎合新兴中产阶级的服务业。
吉象木业就是随著房地产市场的繁荣而兴起的一个明显例证。不过木材制品的用户并不仅限于大城市，吉象木业副总裁张诚（音译）说，那些种植芦笋等经济作物的四川农民也会手持现金购买该公司的木材制品。凯雷投资集团在太平洋百货(Pacific China Holdings Ltd.)的投资也获得了可观的回报，中产阶级的兴起给这家百货连锁店带来了大笔业务。
不过，外商投资者们虽然日渐精明，国内潜在投资对象的高层管理人员们也迎头赶了上来。在谈判过程中，他们会邀请其他公司参与，以非正式的方式提出更高报价来发动一场竞标大战，或者铺陈大量表格来说明如果直接上市可能会比接受战略性投资更加有利。
