Slow market China limited private capital outflows

A lack of Chinese intellectual property offices makes it difficult for private equity firms to cash.

The Shenzhen-based investment bank analyzed more than 9,000 private equity and venture capital transactions completed in China since 2001 and found that more than $100 billion - a large part of the United States - remains invested.

And that, some 22 billion $ is tied up in 2,200 transactions completed before 2008, meaning time is quick for companies to find a way to return cash to investors the standard period 5-7 years.

The problem? Money has nowhere to go.

Until recently, the initial public offerings in Shanghai and Hong Kong were the better and more efficient way for the private equity shops to recoup their investments. But a drought of activity in the IPO market has left companies with no option but to Park money.

And who can not change any time soon.

"It seems more likely not the golden age of Chinese industrial property offices, when more than 350 companies were that lists each year on procurement to the United States, Hong Kong and China, is now complete," the company said in the report.

Other avenues for the receipt of private equity are not well developed in China.

Sales trade - a sale through a merger or acquisition - is extremely rare in the country. And a market for secondary sales - a sale in the company of a private equity-has yet to develop seriously. It leaves investors in the unenviable position to wait than to retrieve IPO market.

"In itself, such reliance on a single output path is risky, said Peter Fuhrman, the president of the first capital of China." "" In the current context, with most IPO activity to a halt, it seems even more so. »

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First capital of China argues that a more robust secondary market may still develop. Interested in buying a stake of one other fund companies would be able to ignore a large part of the due diligence on the accounting issues that sometimes the difficulty of Chinese companies - that this work has already been done by the original investors.

"In the environment of current difficult market of China equity secondary transactions provide a valuable way forward," said the report.

«Secondary potentially offer some of the best opportunities investment adjusted for risk, as well as the more certain and an effective way for the private equity and venture capital companies to get out of the investment.»To top of page

First published: 9 January 2013:6: 55 et