Two sides of a stock market boom

In Hong Kong the Hang Seng Index has risen 11.2% since the start of the month on the back of a flood of Chinese capital entering the market. The gain stands at 18.5% since the start of 2015.

This is the context for the largest of the exits - Hony Capital selling the last of its shares in CSPC Pharmaceutical for HK$9.78 billion ($1.26 billion). Hony restructured the state-owned enterprise to lucrative effect, securing multiple partial exits. CSPC's stock started the month at HK$6.55 and the PE firm was able to sell at a 4.4% discount to the previous close and still walk away with more than 4.4% had it sold at the end of March.

The Carlyle Group also made the most of Hong Kong's gains, exiting its remaining stake in Haier Electronics Group for HK$3.29 billion. Thee price was up 15.7% on the March 31 close.

Other open market sales came in Australia - the ASX200 Index shot up in early February and remains at its highest level since before the global financial crisis - and, notably, India.

The BSE Sensex Index is at a record high and its ascent can be traced back to the general election last May, with a one-year gain of 23%. India investors were the most prolific, in terms of number of exits, in the last quarter of 2014 and the first three months of this year. Despite some recent volatility, this momentum continues, with KKR raising approximately $272 million through the sale of its entire stake in Bharti Infratel.

The flip side to this is reduced investment activity. So far April activity is not on a par with open market exits. A total of $4.6 billion has been deployed across about 80 transactions. This compares to $18.6 billion and over 500 deals for the first quarter in full, which represented a decline on the three months before that.

This is not for lack of effort. As one regional buyout manager puts it: "Everyone is busy working on deals but few are closing. Why is that? Prices are very high. After due diligence people find they can't take the price and the sellers won't reduce it - the stock market is going up and up so why would they?"

A second oft-cited reason is competition from strategic investors that have access to cheap financing and are increasingly acquisitive. In a lower growth environment there is one sure-fire way to achieve growth: buy it.

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

• Topics
• Exits
• Investments
• PIPEs
• Exit
• Sell down
• Asia
• China
• India
• PIPE
• Growth capital