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Comeback of IPOs 'welcome news' for PE, VC companies

By Cai Xiao | China Daily | Updated: 2013-12-05 07:13

Private equity and venture capital firms have invested in about 20,000 Chinese companies, but they've only cashed out from fewer than 3,000, so the pending resumption of initial public offerings is a welcome development, Ni Zhengdong, chairman of the Zero2IPO Group, said on Wednesday.

"Spring is coming for the PE and VC sector, following an industry reshuffle and the resumption of IPOs. The first move for many of these firms will be achieving an exit from their investments," Ni said.

Ni said that in the past 10 years, the return on investment for PE deals in China has been about 20 percent. But conditions have changed, and investors can't rely any longer on the combination of high returns and low risks.

Instead, PE investment will feature moderate risks and returns.

So far, 83 Chinese companies have received approval from the China Securities Regulatory Commission to conduct IPOs. About 50 are expected to be listed by the end of next month, according to the CSRC.

Among the 83 companies, Legend Capital has invested in three companies. That's the largest number for any single PE or VC firm.

The CSRC is reforming the procedure for new listings, and the pace of new share offerings will be faster, which is beneficial for PE and VC investors seeking exits via IPOs.

Mergers and acquisitions are currently the main methods of exiting investment for PE and VC firms, accounting for 32 percent of all exits as of Nov 30.

Equity transfers, management buyout and IPOs were other important exit methods, according to Zero2IPO.

With domestic IPOs having been suspended for more than a year, Chinese companies have increasingly turned to overseas exchanges.

In the first 11 months of the year, 47 companies had gone public in Hong Kong and the United States, raising more than $10.8 billion. Among these, 24 were listed in October and November alone. For some PE firms, those overseas IPOs have offered an exit.

Meanwhile, Chinese PE and VC firms are still finding it rather difficult to raise funds.

In the Chinese PE market, $30.9 billion was raised in the first 11 months of this year, $21.6 billion by yuan-denominated funds and $9.3 billion by dollar-denominated funds.

Almost 40 percent of the money financed was targeted for investment in the property sector.

In the Chinese VC market, $5.8 billion was raised by yuan-denominated funds and $557 million by dollar-denominated funds from January to November.

The Internet, mobile Internet, healthcare, clean technology and consumer sectors have been popular among PE and VC investors this year.

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