Private Equity in China Opportunities for Foreign Capital

- For APBO Asia(Bangkok) 2006 USC Private Equity in China & Opportunities for Foreign Capital Chairman, Dr. Qiwei Chen 2006.11 China: a Hot Land for Private Equity The Unique Opportunities for Private Equity The Challenges and the Models of Success 2 China: a Hot Land for Private Equity  An Overview of the Performance of Private Equity in China in the Past Years  Why China can be a Hot Land for Private Equity 3 Opportunity: You cannot Afford to Miss  China related M&A deals rose to $81 billion in 2005, 50% up every year since 2002  More than $3.6 billion buy-out fund flow into China since 2005  About 15% private equity market in Asia will go to China in coming year  More industries take part in, such as financial services, railways, telecommunication, etc.  Big names: Goldman, Morgan, Warburg, Carley, TH Lee Partners, KKR, 3i, HSBC, Softbank…… 4 China Private Equity Market Exits: Exits Type IPOs Investments: 2004 2005 2005 35 2006 48 Amount Invested 2,040 4,003 (US$ million) Funds Raised Trade Sales 38 61 436 99 (US$ million) Number of deals 1,02 0 17 8 5 China Profits on the Rise Equity earnings of U.S. companies in China (in billion) $4.4 $3.1 $1.9 $3.4 $3.5 2003 earnings of U.S. companies in China, all sources (in billion) Royalties / License fees $1.0 Other services $2.8 1999 2000 2001 2002 2003 Equity earnings $4.4 Source: Fortune Magazine 16 May 2005 6 SOEs 徐工集团 XCMG  Carley:  $375 million for 85% shareholdings  Warburg, CiticCapital and ChennengVC  $240 million for 55% shareholdings     HK code: 2727 Fuxi Investment $123 million investment 67% capital appreciation through IPO 7 Consumption - Channels     HK code: 2319 Morgan Stanley, CDH and ACTIS $60 million 550% appreciation     HK code: 0503 Morgan Stanley and CDH $50 million 160% appreciation 8 Internet     NASDAQ: SNDA Softbank Asia $40 million 1050% appreciation  Softbank  $100 million investment  $180 million cash flow and $180 million valued convertible bond  M&A between Yahoo and Alibaba 9 Financing – Real Estate  Newbridge: $150 million for 17.89%  GE Consumer Finance: $100 million for 7.29%  Newbridge appreciated more than 50%  Burgeoning market for second-hand real-estate.  Softbank Asia: $30 million for 15%  Carley $10 million for 7.5% 10 China: a Hot Land for Private Equity  An Overview of the Performance of Private Equity in China in the Past Years  Why China can be a Hot Land for Private Equity 11 1200 1139 1000 800  Disposable income up 5.7% urban incomes up 9.8%  Consumption up 10%, retail sales up 9.2% in 2004 – a key economic driver 931 759 829 1024 600 400 200 0  Increasingly wealthy middle class 2000 2001 2002 2003 2004 Disposable Income of Urban Population (US$)  2030 – 70% of population urbanised  Upgrading consumption provides opportunities for Mengniu Dairy, Yurun Food, Yongle, HomeInn, Shanda, etc. 12 Fascinating consuming market …… 13 Fashions from overseas…… 14 More Friendly Environment  Deregulation is the general trend, such as recent notice from SAFE, which re-opens the windows for “Red Chip”  Financial system is under the historical restructuring, including banking system, stock market, exchange system, etc.  Undergoing reform of division of equity tradability in Chinese stock market WTO access, more industries opened, such as banking, railway, logistics, retailing, etc. 15 China: a Hot Land for Private Equity The Unique Opportunities for Private Equity The Challenges and the Models of Success 16 The Unique Opportunities for Private Equity  The ongoing restructuring of big SOEs  Deepening reform of financial institutions  Emerging private companies seeking for more outside resources 17 The Ongoing Restructuring of Big SOEs  Crucial industries: oil, iron & steel, coal, telecommunication, banking, real road, etc.  Changing policy: most SOEs in good shape are forced to take restructuring and privatization  The restructuring and privatization will be completed in next five to ten years. 18 The Fast Growing Private Sector 1 1 24 32 36 13 19 2 4 5 12 3 18 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1980 75 Companies with foreign investment Public companies Privately held companies Collectively owned companies 37 17 66 55 35 21 State-owned companies 25 1985 1990 1995 2002 China’s Industrial Output by Type of Enterprise (%) 19 Emerging Private Companies   Keenest to smell the market opportunities and react quickly. Many has grown to be the most important players in its niche, not only in China, but in the world. Focus in the fast growing industries, especially those closely linked with 1.3 billion people’s daily life, such as retailing, tourism, logistics, etc. Entrepreneurs with wisdom to explore new area to create new demand and market Chen Tianqiao: 32 years old, founder of Shanda,   1 billion The tenth wealthiest person in China 20 China: a Hot Land for Private Equity The Unique Opportunities for Private Equity The Challenges and the Models of Success 21 Challenges for Foreign Investors  Scanning and identification of the right target  Negotiation and locking-in  Post-investment management  Divestment  Communications with local entrepreneurs  Political and legal environments 22 Practical Models of Success  Join an experienced fund as a LP  Cooperation: cooperate with a local partner as anchor-investor  Establish your own team 23 Factors Help Proper Niche Market Positioning Accurate Evaluation Reliable Local Cooperator Executable Plan for Investment & Exit Unique Valueadded Services 24 ABC: Your Most Reliable Strategic Partner in China  Asia Business Consulting, established in 1988, is one of the first strategic management consulting company with a global view based on the Chinese mainland.  Has so far provided professional management consulting services to more than 200 listed companies and 100 business groups in China.  Consultant to tens of regional governments.  Has invested in 9 China based companies with an aggregate transaction value of appr. US$ 40 million, has exited from 2 of 9 through trade sale, 1 of 9 becomes American public company, 3 of 9 plan to IPO in 2006, total IRR is 40%.  Financial advisor for over 30 M&A transaction with the aggregate transaction value of approximately US$ 2 billion. 25 What ABC can Offer Access Speed First access to investment opportunities Fast scanning and capital allocation Insights Local Experiences Deep insights of China major industries Long-term relations with local entrepreneurs Chemical reaction from experienced team and extensive resources Synergy 26 Contact Us ADD: TEL: FAX: NO.8 Building 2558 Yan’An Road(W) Shanghai, P.R.China (Post code: 201103) (8621)-62959001 (8621)-62958055 URL: Http://www.abc.sh.cn 27 Thank You! 28