Yuan-based funds end up dom­i­nat­ing cap­i­tal rais­ing, re­veals PwC

China Daily (Hong Kong) - - BUSINESS - By CAI XIAO caix­iao@chi­nadaily.com.cn

Yuan-de­nom­i­nated pri­vate eq­uity and venture cap­i­tal funds ac­counted for over three quar­ters of the cap­i­tal raised in the main­land PE and VC mar­kets last year.

Investors ac­tively looked for op­por­tu­ni­ties in tech in­dus­tries, ac­cord­ing to a new re­port is­sued by in­ter­na­tional ac­count­ing firm Price­wa­ter­house­Coop­ers.

The re­port said that as China re­sumed ini­tial pub­lic of­fer­ings in 2014, the Chi­nese PE and VC mar­ket had grad­u­ally re­cov­ered with fast-grow­ing ren­minbi funds be­com­ing a dom­i­nant force in 2015 and 2016.

It said driven by ex­pec­ta­tions about the fast-grow­ing tech­nol­ogy sec­tor, there was ris­ing de­mand for fundrais­ing amid height­ened con­sol­i­da­tion and ac­cel­er­ated ex­pan­sion in the fin­tech and fi­nan­cial pay­ment sec­tors.

The new re­port found that PE and VC investors have shown keen in­ter­est in op­por­tu­ni­ties in the tech­nol­ogy in­dus­tries, in­clud­ing the in­ter­net, in­for­ma­tion tech­nol­ogy, telecom­mu­ni­ca­tions and biotech­nol­ogy sec­tors.

“RMB funds are be­ing in­creas­ingly used to fi­nance in­no­va­tive high-tech sec­tors to iden­tify op­por­tu­ni­ties in a slow­ing econ­omy,” said Amanda Zhang, PwC’s North China pri­vate eq­uity group leader.

“In the past two years, largescale in­vest­ments oc­curred in the mo­bile in­ter­net and high-tech sec­tors, in­volv­ing both early-stage startups and es­tab­lished com­pa­nies that have ben­e­fited from in­dus­try con­sol­i­da­tion,” Zhang said.

She said the de­vel­oped cap­i­tal mar­kets and the strong M&A sec­tor had pro­vided di­verse chan­nels for investors to exit, or cash out from their in­vested com­pa­nies.

The re­port also said yuan-de­nom­i­nated pri­vate eq­uity and venture cap­i­tal funds were step­ping up their pace of mov­ing abroad. It said they were look­ing

RMB funds are used to fi­nance in­no­va­tive high-tech­nol­ogy sec­tors to iden­tify op­por­tu­ni­ties in a slow­ing econ­omy.” Amanda Zhang, PwC’s North China pri­vate eq­uity group leader

for over­seas com­pa­nies that were serv­ing the Chi­nese mar­ket, or pur­chas­ing for­eign as­sets and sell­ing them to A-share listed com­pa­nies.

“As there are not enough high­qual­ity as­sets for rea­son­able prices at home, Chi­nese A-share listed com­pa­nies hope to part­ner with pri­vate eq­uity firms in cross­bor­der M&A trans­ac­tions, by lever­ag­ing their ex­per­tise in fi­nan­cial coun­sel­ing and tar­get se­lec­tion,” said Ni Qing, PwC China pri­vate eq­uity group part­ner.

The re­port added that RMB funds were grad­u­ally mov­ing from tra­di­tional fi­nan­cial investors to strate­gic investors.

It said PE and VC fund man­agers were now plac­ing greater em­pha­sis on the con­cen­tra­tion and con­sol­i­da­tion of the sec­tors the tar­get com­pa­nies op­er­ated in, aim­ing to se­cure sta­ble re­turns in both the pri­mary and sec­ondary mar­kets.

“Chi­nese reg­u­la­tors re­leased sev­eral poli­cies, which in­clude em­brac­ing a new era of as­set man­age­ment, ad­vanc­ing Sta­te­owned en­ter­prise mixed own­er­ship re­form, and devel­op­ing multi-level cap­i­tal mar­kets,” said Gao Jian­bin, a part­ner at PwC China.

“All of th­ese pushes for­ward the devel­op­ment of RMB funds so that fund man­agers are un­der­pin­ning value cre­ation — they are not sat­is­fied with be­ing only fund providers, but also will­ing to be­come ac­tive strate­gic investors.”

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