All eyes on 3i in China
3i is a leading private equity business with a history of 62 years. Established in 1945 with funding from the Bank of England, UK clearing banks and the City, 3i Group was listed in London in 1994 and remains the only FTSE 100 Private Equity business with five different asset classes and $14.3 billion under management.
The company has invested over $250 million in many well-known Chinese companies such as Focus Media, China's largest multi-channel advertising media company; D.Phone, one of China's earliest mobile phone retailers; PCD, established by Ports CEO, a high-end department store; and Inner Mongolia Little Sheep Catering Chain Co, China's leading retail hotpot restaurant chain.
Below is an exclusive interview with Lily Jin, chief representative of 3i's Beijing office, who was voted the best venture capitalist in 2006 by Forbes for her investments in Mengniu Dairy and Suntech Power.
Q: What was the situation when 3i came to China in 2001? Have circumstances for foreign private equity investments in China changed over the past six years?
A: 3i came to China when there were few other competitors operating in the market and private equity was not yet a buzzword. Successful listings of companies such as Focus Media and Mengniu Dairy, and increasing numbers of high-quality Chinese companies have delivered great results and expanded very quickly. Therefore more and more international investors are flooding into the market.
Over the past three to four years, with proven high returns for overseas listings, the number of funds in the market has risen significantly. This is making China a competitive place to make investments. With so much capital in the market, Chinese companies are no longer interested in how much money you have, but rather the strategic advantages that you can bring to the table.
Q: How many deals is 3i likely to make this year? And what is the average investment amount?
A: We recently closed our first onshore investment, of around $35 million. We are focused on other high-growth, traditional sectors such as branded consumer products (which includes retail and food products), oil, gas and renewable energy, and affordable real estate. We will probably look to invest in four to five Chinese companies this year, investing close to $200 million in total.
Q: Which sectors in China offer the greatest opportunity?
A: Globally, we focus on high-growth sectors where we have the most experience and resources. There are great opportunities in a number of sectors in China. China has a large domestic market with a population that has increasing disposable income, making consumer-related goods and services a good area for investment.
Q: So far 3i has focused on making minority investments in Chinese investee firms. Why?
A: When we were set up over 60 years ago, our sole focus was to invest 'growth' capital. We pioneered the minority investment model and have developed a very good understanding and method of making these kinds of investments.
We believe the business is the management's responsibility to run and that we provide the necessary strategic support, which can be in a variety of forms. Perhaps another important difference between the situation in China compared with Europe or the US is that many private companies are relatively younger and thus owners are less keen to relinquish majority control.
Q: How do you persuade investee companies that 3i is a good business partner?
A: 3i offers a global network of entrepreneurs, sector experts, experienced practitioners, corporates and advisors that can be very useful to our investee companies, both in developing their competitive edge at home and in expanding overseas.
3i's international offer is fundamental to investing in China. For example, when we invested in Jason Jiang's Focus Media back in 2004, we introduced Eric Rozenkranz, who was appointed the company's VP. Eric's experience both in Asia and the US was very useful both in understanding Jason's model and raising the company's profile before listing in April 2005.
We later came across an identical start-up business in India and immediately thought of Jason, introducing him to the business prior to providing capital to fund the company's expansion.
(China Daily 09/06/2007 page54)
