Hony targets $2b for flagship China fund

Hony Capital Fund VIII comprises two pools of capital - one US dollar-denominated and the other renminbi-denominated - each with a target of $1 billion, according to people familiar with the situation. The two pools will invest in the same assets based on their respective portions of the overall fund.

The GP will also raise a $600 million co-investment side vehicle that allows LPs to invest in cross-border transactions outside of China. Foreign portfolio companies are expected to have strong growth potential in China.

In the past, US dollar funds and renminbi funds operated by the same manager have invested in different deals due to currency convertibility issues and restrictions on foreign participation in certain industries. Hony wants to pioneer a more equitable structure, leveraging policies announced in Shenzhen's Qianhai Special Economic Zone and the Shanghai Free Trade Zone.

The fund will invest in mainland China, Hong Kong and Taiwan. Half of the corpus is expected to be deployed in state-owned enterprises (SOEs) that need to be reorganized in both private and public markets. It will also invest in private companies that are undergoing restructuring or transformation, or are in distress.

Hony closed its fifth US dollar fund at $2.36 billion and collected a total of RMB10 billion ($1.6 billion) for its second renminbi fund in 2012. Each fund was twice the size of its predecessor. The fifth US dollar fund has currently committed $2.16 billion across 18 companies. As of June, it had delivered an IRR of 30%.

Speaking at Hony's annual general meeting last week, Zhao said the firm will look at policy reform themes, particularly those involving SOEs, as China's economy becomes more open and innovative. Policy details may change over time in terms of execution, but the government's commitment to reform is clear, Zhao noted.

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. Mostly recently, it acquired a minority stake in listed hotel chain Shanghai Jinjiang International and has since supported the company's outbound expansion plans.

The GP currently has more than RMB46 billion in assets under management. Over 80% of its capital is invested in the consumer and services sectors.

As part of broader efforts to internationalize the renminbi, Qianhai was designated a testing ground for eased currency movements in 2012. Measures include allowing private equity firms to raise renminbi-denominated funds from overseas investors. Several high-profile PE players have bought into the idea, including John Zhao, CEO of Hony. In May of last year, the GP bought 15,062 square meters of land in Qianhai for RMB646 million.

A similar scheme launched in the Shanghai Free Trade Zone, which claims to offer world-class transportation and communication facilities as well as a tax-free environment. It is also a pilot project for renminbi convertibility and exchange rate liberalization. Hony was among the first batch of companies to be awarded license to operate in the zone in 2013.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Fundraising
• Renminbi fund
• China
• Fundraising
• Hony Capital
• GPs