International PE players say time is right for PIPE deals – AVCJ China Forum

China's strong economic growth has not transformed into stock performance. Following the falling equity prices in the country's bourses in 2010 and 2011, valuations of many of the Chinese companies have gone down significantly. Participating in a panel discussion as part of the AVCJ China Forum on Wednesday, David Haifeng Liu, head of KKR in Greater China, said that now is the right time for PIPE transactions.

"We are not stock pickers, as we don't get 1% of the company and hold it for an increase in price," he stressed. "The key is to take a long-term view of the company."

Francis Leung, chairman of CVC Capital China, shared a similar point of view, adding that the company will identify good companies in the long-term, despite short-term fluctuations in valuation. The private equity firm will enhance the corporate management of their portfolio companies and get them re-rated.

While public equity markets continue to disappoint investors, fewer mutual funds have showed interest in backing initial public offerings and companies have turned to private equity funds to act as cornerstone investors.

Baring Private Equity, for example, became a cornerstone investor in the IPO of China Yongda Automobile Services, which just dropped its Hong Kong IPO plans due to market fluctuations. The private equity firm reportedly invested $96-120 million in the deal.

"CVC is not interested in being a cornerstone investor because as you are only one of the several investors there, you cannot make an impact on the company," Leung said.

Speakers at the forum emphasized that China has entered a tougher year, with regulation hurdles and fundraising remaining major challenges. Weijian Shan, chairman of PAG, added that the private equity market in China has peaked, but the capability of PE players to combine international expertise and local networks will decide the eventual winners.

David Liu from KKR added that he foresees more types of deals as the market matures, but most firms in China will still be focused on minority transactions. The firm will focus on doing 3-5 investments a year, targeting exceptional companies with strong growth prospects.

"We are not quick investors who aim at getting a deal three weeks earlier than the others; minority investment especially is a marriage," he said. "The game of quick returns is over and private equity firms are no longer able to get their deals listed within six months after their investments."

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• Topics
• PIPEs
• Greater China
• AVCJ Private Equity & Venture Forum
• China
• PIPE
• KKR
• CVC Capital Partners