Carlyle completes third CPIC sell-down

The previous liquidity event, which took place early January, saw Carlyle raise $1.79 billion through the sale of 415.2 million shares, with Allianz Group and Fairholme Capital divvying 82% of the offering. The third sell-down was a $864 million private placement in late December 2010.
The total $3.64 billion raised – against an initial investment of $740 million made in two tranches, in 2005 and 2007 – is the second-largest open market exits ever recorded by a private equity firm in China, according to AVCJ Research. Goldman Sachs tops the list, having generated $3.9 billion through two sell-downs of Industrial and Commercial Bank of China, in June 2009 and September 2010.

Carlyle can’t sell any more shares in CPIC for three months, but analysts expect the buyout firm to exit as soon as it can. “I expect two more rounds of sell-downs,” says Kenneth Yue an insurance analyst at CCB International. “The next round couldn’t be any earlier than October, so we might see a final exit in early 2012.” He adds that Carlyle’s exit strategy would likely have been agreed with CPIC with a view to causing minimal disruption to the share price.

The January sale was made by Parallel Investors Holdings, a Carlyle-owned vehicle registered in Mauritius, which saw its stake in CPIC fall from 9.63% to 4.8%. Another Carlyle vehicle, Carlyle Holdings Mauritius, at the time held a 3.2% interest in CPIC. Last week’s transaction leaves the private equity firm with a 5.1% holding. Based on the July 29 closing price of HK$29.55, that holding is worth $1.68 billion.
Although there are macroeconomic concerns in China, these are unlikely to have weighed to heavily on Carlyle’s exit strategy. The majority of analysts have a “buy” rating on CPIC’s stock, and its 16.3% year-on-year increase in 2010 net profit to RMB8.6 billion ($1.3 billion) was generally well received.

Notably, the company boosted its sales team by 10.2% to 280,000, which points to a longer-term strategy of reducing reliance on banks as a distribution channel. This is good for business for two reasons. First, less has to be paid in commissions to banks. Second, banks tend to sell more single-premium products while agents target higher margin regular premium policies.

From Carlyle’s perspective, however, there is a desire to wind down Carlyle Asia Partners, LP, which launched in 1999 and raised $750 million. Following the sale of OIL Offshore Incorporations to IK Investment Partners in March, CPIC is the fund’s final holding. 

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• Topics
• Exits
• Greater China
• The Carlyle Group