
TR, Shenzhen Capital back renminbi continuation fund
TR Capital and Shenzhen Capital Group have backed the spin-out of six healthcare assets held by China focused GP Huagai Capital into a RMB800 million ($125 million) renminbi-denominated continuation fund.
The transaction was described as a hybrid renminbi and US dollar qualified foreign limited partner (QFLP) secondary, presumably because Shenzhen Capital participated via a local currency vehicle while TR used a QFLP quota to convert capital from its latest US dollar fund into renminbi. The target assets came from three different Huagai funds.
The first secondary deal to take advantage of QFLP closed last year. IDG Capital completed a $600 million restructuring in which assets were transferred from one renminbi vehicle to another backed by a consortium of offshore investors led by HarbourVest Partners.
Speaking to AVCJ earlier this year on the close of TR’s fourth fund at $350 million, Paul Robine, the firm’s founder and CEO, said he expected QFLP secondaries to become a more prominent.
“I wouldn’t be surprised if we see a number of these deals in 2021,” he said. “QFLP deals give international investors the opportunity to invest in renminbi-denominated companies. Whether a deal is a QFLP or a renminbi-to-US dollar deal, it is largely driven by where a company wants to list to optimize its value and raise further capital. For QFLP, it would be the domestic markets.”
Extracting assets from a renminbi fund and placing them into a US dollar vehicle means restructuring positions one-by-one. Sometimes variable interest entities (VIEs) or joint ventures must be inserted so that offshore investors can have access to the underlying companies. There is no need to do this for QFLP secondaries because currency conversion happens in reverse and at the fund level.
Huagai was established in 2012 and claims RMB15 billion in assets under management across seven funds, including dedicated technology, media and telecom (TMT), healthcare, and culture vehicles. There have been three healthcare funds to date, from the 2015, 2016 and 2019 vintages.
Last week, Legend Capital announced the formation of a continuation vehicle for healthcare assets drawn from two of its US dollar China venture capital funds. The $270 million deal, which included capital for follow-on investments, was supported by Hamilton Lane and Coller Capital.
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