Hony still focused on China reform, despite market volatility

"To invest in China, we should look at the policy reform themes. China is changing its economy to become increasingly more open and innovative," Hony CEO John Zhao told the company's annual general meeting in Nanjing. "The market might be in a state of confusion right now, but we see that the government is becoming firmer on reforms."

Last week, the State Council and the Communist Party's Central Committee (CPC) issued long-awaited guidelines on SOE reform. They identified the introduction of "mixed ownership" of SOEs and improved financial returns, productivity and efficiency as key objectives to be achieved by 2020.

However, they also mandated stronger CPC control over the SOE sector. This stance appears to contradict the economic blueprint announced at the 18th CPC National Congress two years ago, which called for market forces to play a "decisive role" in the better allocation of resources.

Zhao noted that policy details may change over time in terms of execution, but the government's commitment to reform is clear. "People think that SOE reform means privatization of the assets," he added. "Hony has been involved in SOE reform for about 12 years and we have never talked about privatization - we want to help companies become more market-driven."

SOEs accounted for over 50% of A-share IPOs in 2000 with a total asset value of RMB1 billion ($157 million). This has fallen to 16% so far this year, although the size of the asset pool has grown substantially, reaching RMB6.7 billion.

Hony was an early mover among private equity firms in pursuing SOE restructuring. Over the past 12 years, it has been involved 33 SOE transactions with RMB2 trillion in assets. Most recently, it acquired a minority stake in listed hotel chain Shanghai Jinjiang International and has since supported the company's outbound expansion plans. Hony expects to see more SOE investments structured as PIPEs.

The private equity firm currently manages five US dollar-denominated and two renminbi funds and has more than RMB46 billion in assets under management. Over 80% of its capital is invested in the consumer and services sectors. Hony's fifth US dollar fund, which closed at $2.35 billion in early 2012, has committed $2.16 billion across 18 companies. As of June, it had delivered an IRR of 30%.

In addition to SOE reform, the GP investment sectors and themes include healthcare, food and beverage, media and entertainment, cross-border strategies and the convergence of the new and old economies.

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• Topics
• Buyouts
• Greater China
• GPs
• Hony Capital
• China
• buyout
• John L.H. Zhao
• GPs