Car­lyle ‘op­ti­mistic’ over re­struc­tur­ing of SOEs

China Daily (Hong Kong) - - BUSINESS COMPANIES - By CAI XIAO caix­iao@chi­

In­vest­ments in China by lead­ing global pri­vate eq­uity firm The Car­lyle Group hit a record high in 2013, and the re­struc­tur­ing of State-owned en­ter­prises will be a fo­cus for years to come, ac­cord­ing to se­nior ex­ec­u­tives of the com­pany.

“While some busi­nesses are grow­ing less op­ti­mistic in China be­cause of the slow­ing growth of the econ­omy, Car­lyle Group is as op­ti­mistic about China as we have ever been,” said Car­lyle Man­ag­ing Di­rec­tor David Marchick. “As proof of our con­fi­dence, we in­vested more than $1.1 bil­lion in China in 2013, more than any year in our his­tory.”

Car­lyle has in­vested in about 80 Chi­nese trans­ac­tions to­tal­ing $5.2 bil­lion since 1998. It now has more than 20 ac­tive in­vest­ments in China, mostly in small and medium-sized en­ter­prises.

“We are very en­cour­aged by the re­sults of the Com­mu­nist Party’s Third Ple­nary Ses­sion,” said Marchick. “We would like to par­tic­i­pate in the re­form of SOEs and help them be­come more com­pet­i­tive in global mar­kets.”

In Jan­uary, Car­lyle sold its re­main­ing stake in China Pa­cific Insurance (Group) Co Ltd in a deal val­ued at $793 mil­lion. The pri­vate eq­uity firm be­gan sell­ing its stake in the in­surer in late 2010, and it earned about $4 bil­lion from stock sales dur­ing that time, five times the

Rather than be­ing a con­trol­ling share­holder, Car­lyle will be a mi­nor­ity share­holder of a State-owned en­ter­prise and make a pos­i­tive in­flu­ence on its de­vel­op­ment.” XIANG-DONG (X.D.) YANG CAR­LYLE MAN­AG­ING DI­REC­TOR

$800 mil­lion it had in­vested be­tween 2005 and 2007 for a 17 per­cent stake in the Chi­nese firm, ac­cord­ing to cal­cu­la­tions by Thom­son Reuters.

Car­lyle also in­vested in another State- owned en­ter­prise, Chongqing Poly­comp In­ter­na­tional Corp, a maker of E-glass fiber, and helped it set up a man­u­fac­tur­ing base in Brazil.

Marchick said Car­lyle is very se­lec­tive about the in­vest­ments it pur­sues and men­tioned three fac­tors it pays at­ten­tion to when in­vest­ing in a State- owned en­ter­prise.

“Does the com­pany have com­pet­i­tive prod­ucts or ser­vices? Does it have a strong man­age­ment team or will it be open to strengthen the man­age­ment team? And, is the com­pany in our area of ex­per­tise?” said Marchick.

If a com­pany is cho­sen, Car­lyle will help it cul­ti­vate good man­agers, and im­prove merger-and-ac­qui­si­tion ca­pa­bil­i­ties, fi­nan­cial man­age­ment, over­seas ex­pan­sion and cor­po­rate gov­er­nance, he said.

Xiang- Dong ( X. D.) Yang, a man­ag­ing di­rec­tor and co­head of the Asia buy­out ad­vi­sory team since 2001, said Car­lyle feels good about China’s growth in the long term and that now is a good time to in­vest in China.

“We pay at­ten­tion to the eco­nomic re­form, and the re­struc­tur­ing of State-owned en­ter­prises is a very im­por­tant is­sue,” said Yang.

Yang said that in­vest­ing in a State- owned en­ter­prise is dif­fer­ent from in­vest­ing in a pri­vate one and that build­ing an ef­fec­tive plan for in­cen­tive sys­tems is nec­es­sary. Pro­fes­sional pri­vate eq­uity in­vestors, he said, should help the man­age­ment teams be­come more mar­ket-ori­ented and learn to link their com­pany’s per­for­mance to in­cen­tives.

“Rather than be­ing a con­trol­ling share­holder, Car­lyle will be a mi­nor­ity share­holder of a State-owned en­ter­prise and make a pos­i­tive in­flu­ence on its de­vel­op­ment,” said Yang.

Other than in a few sec­tors of State mo­nop­o­lies and de­fense, SOEs are ex­pected to be more mar­ket-ori­ented and to prove their ef­fi­ciency through com­pe­ti­tion with other com­pa­nies, both do­mes­tic and for­eign.

“We’ve done the right thing. Our ex­per­i­men­ta­tion in the past decade or so has suc­cess­fully cre­ated mar­ket-savvy SOEs,” John Zhao, CEO of Hony Cap­i­tal, told China Daily.

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