An IPO is no longer a preferred option for raising funds for the private Chinese companies with Shanghai Composite Index slumping from a peak of 6,124 to the current 2,837.

A source at Deloitte said during the bullish market Deloitte had doubled its IPO fees and still there was huge demand for its services.

But, it's almost holiday time for us now, he said. "We don't have much to do as few companies will launch IPOs these days." And when an IPO is no longer a viable option, private companies in need of funds must seek other solutions.

This is where private equity funds come in: An investment banking source said now is the golden moment for private equities, both domestic and foreign, to get a good deal at a bargain price.

The reason for this is twofold; firstly, China's A-shares market has long been a point of reference for equity investors.

Since the A-share has one of highest price-to-earnings ratios in the world, Chinese companies often get a relatively high asking price for their shares. As market conditions change, the asking price falls. In addition, applying for bank loans has become much more difficult.

The Chinese government has applied strict monetary controls to curb inflation. As a result, banks are even less keen to lend. They will consider lending to only a select group of well-established companies.

In such an environment, small and medium companies are finding it increasingly hard to access funds and private equity becomes the only fundraising option.

One banking source suggested that recent events have created a buyers' market with equity investors able to pick and chose.

Once negotiations are underway, they can propose deals that obviously undervalue the target and still have a fairly good chance of success.

"Many quality companies are thirsty for investment because they cannot raise funds like before," he said.

The end result is that in order to raise funds as planned, many companies will accept offers that they would previously have rejected.

"Some ask for less money, while others are forced to sell more shares (than intended). In some cases, even a controlling stake might be put up for sale."

A change of market conditions has thrown up golden opportunity for private equity players in China to get access to quality private companies they could only dream of a year ago.

But how long will the opening last? It is impossible to predict when the market condition will return to its former bullish self.

And if the A-shares become a bull market again, then the road will change once more.

The author is a financial reporter with mergermarket.

(HK Edition 07/31/2008 page3)