China's Welkin Capital targets London IPO
China-focused Welkin Capital is looking to raise up to USD 300m through an IPO for a London-listed investment entity seeded with assets from its debut private equity fund, which closed in 2017.
It is claimed that Welkin China Private Equity (WCPE) will become the first closed-ended investment company listed on the London Stock Exchange dedicated to investing in privately held Chinese companies. A prospectus will be issued in due course, according to a filing.
The firm opted for a London listing rather than Hong Kong in part because it wants to raise its profile among LPs in Europe with a view to future fundraising, according to a source close to the situation. London is also a popular location for investment trusts, which is the structure being used for the IPO.
Welkin was established in 2009 by the scions of several prominent business-owning families in Greater China. It has USD 500m in assets under management and targets mid-market growth-stage investments across consumer, enterprise solutions, and advanced manufacturing in China.
Having initially made investments from its balance sheet, the firm closed a debut blind pool fund on USD 160m, with contributions from a sovereign wealth fund, a pension fund, several fund-of-funds, insurers, and family offices across the US, Europe, and Asia. The GP contribution was around 25%.
Welkin leverages the family networks and professional experience of its principals to source deals in the small and medium-sized enterprise (SME) space and support portfolio company growth through business introductions, advice on regulatory engagement, and assistance in recruitment. It claims a compound annualised return across all China-based investments of 28% as of December 2021.
The seed assets include skincare brand Shawya Biotechnology, hotel digitalisation platform Htrip Technology, elevator smart management business Xinzailing Technology, craft beer brand Great Leap Brewing, consumer privacy management platform Tianxia Technology, edible oils brand Guitaitai, automotive after-market services player Tuhu, credit-scoring specialist Baihang Credit, K-12 boarding school operator Aidi School, and organic fertiliser supplier Te Wo Shi Sheng Tai.
The seed assets in WCPE comprise interests in Welkin’s fund worth USD 15m, which will be exchanged for 15m ordinary shares in WCPE at USD 1.00 apiece with a 60-month lock-up; and direct interests in 10 underlying portfolio companies worth USD 15m, to be exchanged for cash. In effect, the IPO facilitates secondary exits at the LP and GP level.
WCPE will look to build a diversified portfolio of private Chinese companies across different sectors and investment horizons, capturing long-term growth opportunities and market dislocations. Pipeline opportunities amount to USD 500m, including growth and tactical investments. The target annualised net asset value return is at least 15%.
For at least the first 12 months, WCPE will focus on tactical investments, primarily secondary opportunities in private equity funds managed by third parties. Select direct investments, co-investments, and acquisitions of portfolios of assets also fall under this category. Growth investments are more traditional long-term deals involving companies that require expansion capital.
"We believe China's economy is undergoing a structural shift over the next decade, moving away from volume-fuelled expansion to productivity-led growth. Changes in government policies over the past year reflect this shift,” said Johnny Kong, CEO and co-founder of Welkin.
“While there has been a period of immense volatility in the public markets, secular growth drivers continue to provide support for long-term investment in the next stage of China’s economic transformation.”
He added that valuations of private assets are normalising to attractive levels, while domestic M&A and equity capital markets activity remains strong.
Kong comes from a line of textile producers, and he worked in investment banking for Goldman Sachs and led private investments for his family office before establishing Welkin. His co-founders are Justino Liang, previously a family office investor whose ancestors helped establish Hang Seng Bank and The Mira Group, and Christopher Fong, formerly of SAC Capital and Evercore Partners.
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