State banks launch Sino-French fund

Cathay Capital, a Sino-French private equity firm, has been appointed to manage a EUR150 million ($189 million) joint venture fund between China Development Bank (CDB) and French state-owned bank Caisse des Dépôts (CDC) to invest in Chinese and French small- and medium-sized enterprises. CDB Capital and CDC Enterprises, will each contribute EUR75 million.

"The launch of this fund materializes the closeness between our two institutions," says Xuguang Zhang, president and executive director of CDB Capital. "We have great ambitions for this partnership and are confident of its success, given the respective qualities of French and Chinese companies."

This is not CDB's first commitment to outbound funds. In 2007, the state-bank launched the $5 billion China-Africa Development Fund to invest in African projects developed by Chinese enterprises. It also backed Mandarin Capital, which closed its maiden fund in the same year at EUR327.75 million, alongside the Export-Import Bank of China.

"CDB and CDC Entreprises started negotiations about two years ago and they were searching for a GP to manage their joint-investments," LanchunDuan, executive director of Cathay Capital, tells AVCJ. "We were mandated largely based on our strong track record of investment over the last six years and our close ties with CDC, which has been our LPs since inception."

Cathay's EUR70 million maiden cross-border fund is now fully deployed and in May 2011 it held a first close on a second fund at EUR125 million. A final close of EUR250 million is expected in November.

"The Sino-French Fund is a parallel fund of Cathay Capital Fund II managed by the same team," Duan adds. "In the coming future, we will co-invest into companies by channeling capital from both funds at the same time."

In the second quarter of 2012, China's outbound direct investment reached $24 billion, up 67% year-on-year, according to a research published by another Sino-European PE firm, A Capital. Investment in Europe, which accounts for 48% of total deals by value, surged 95%. Duan observes that, while more Chinese companies want to expand overseas, they need PE players with local and overseas expertise to handle operational matters.

"Having established teams in both China and France, we have equal understandings of both markets," Duan says. "While in China we are a Chinese manager; in France, local companies are also more likely to share their advanced technologies with us, rather than other foreign investors who they don't trust."

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• Topics
• Greater China
• Europe
• Fundraising
• Outbound investment
• China Development Bank
• China
• Europe
• Fundraising