Beijing Leads in PE Investment; Investment in Traditional Industry Falls
BEIJING, April 23 /Xinhua-PRNewswire/ -- Zero2IPO Group, a leading integrated service provider in China's venture capital and private equity industries, recently announced that China's Private Equity market remained at a relatively high level of development during the first quarter of 2008.
The Zero2IPO Research Center -- the research arm of Zero2IPO -- released its "China Private Equity Report Q1 2008". According to the report, sixteen funds targeting Asia (including China) raised US$20.00B during this quarter. The total funds increased substantially in comparison to the same period of last year. Overall, 36 Chinese enterprises received US$2.68B investment from over thirty PE organizations. Exit was not as active as before with only eight exits occurring in Q1, including three PE-backed IPO events.
This document provides valuable data and expert conclusions based upon the Q1 survey and the report above. It covers the participation of 75 PE funds with active records in investing in Mainland China.
Total Funds Raised Sharply Increases
Fund Strategies Tend to Diversify
PE funds raised capital during Q1 quite actively. According to the Zero2IPO statistics, the 16 new funds collectively raised US$20.00B -- up by 163.3% in comparison to the same period last year and 59.6% when compared with Q4'07. The substantial number of PE funds in China will fuel the development of Chinese elite enterprises in the tense competitive environment.
Figure 1: Total amount & number of newly raised funds, Q1'07 to Q1'08
(Please Click the Link at the end of the release)
Meanwhile, fund strategies substantially changed over this period. Capital raised for real estate funds accounted for 2.5% of the total, marking a sharp fall in comparison to the ratio 19.3% for 2007. Growth capitals represented 46.5% this quarter, almost twice the rate (24.4%) for 2007. The change of strategy structure of PE organizations has twofold implications. First, investors generally had a subtle psychological change in investing in the real estate industry amid concerns of the widespread influence of the subprime mortgage crisis and uncertain prospects for the real estate industry. Second, investors are paying more attention to industries with investment opportunities that are fueled by the high growth of China's overall economy.
Total Amount Invested Keeps Stable
Broad IT Industry Has a Larger Average Amount Invested
On the whole, PE investment remained stable in the first quarter of 2008. PE organizations invested US$2.68B into 36 Chinese enterprises. The total investment amount increased a bit from Q1'07 but decreased by 39.78% from Q4'07. It also fell in comparison to the average amount per quarter invested for the entirety of 2007 (US$3.20B).
Figure 2: Overall investment by quarter, Q1'07 to Q1'08
(Please Click the Link at the end of the release)
From the perspective of industrial distribution, Traditional industry continued to take the lead in obtaining PE investment: It accounted for 52.9% of the total quarterly PE investment. The total share of Traditional enterprise financing for 2007 was 65.0%, and PE investment in respect of industrial distribution saw the beginnings of diversification strategy during Q1 2008.
Figure 3: Industrial distribution of PE investments by amount invested
(US$M)
(Please Click the Link at the end of the release)
The average deal size for Q1'08 remained on par with that for the entire year 2007. Notably, the average size of Broad IT deals increased to roughly US$149.54M in Q1'08 from US$94.00M in 2007.
Figure 4: Industrial distribution of PE investments by average amount
invested (US$M)
(Please Click the Link at the end of the release)
Beijing as Pace-setter; Central and Western Regions Gaining more Chances
In terms of regional distribution of PE investment, Beijing won the first position with ten deals landing US$1.33B. In other regions, there was little difference in terms of the number of PE investment deals, but a large gap in terms of average deal size. Shanghai, Shenzhen, and Guangdong (Shenzhen excluded) respectively all received less PE investment.
Figure 5: Regional distribution of PE investments by amount
invested (US$M)
(Please Click the Link at the end of the release)
The eastern coastal regions experienced stable growth in PE investment. The northeastern, central and western regions of China also experienced a gradual increase in PE investment. The latter regions, represented by Hebei, Henan, Hubei, Chongqing, Shaanxi, and Liaoning, raised US$633.15M. We anticipate that more PE investment funds will be created in these less-developed regions of China.
Figure 6: Regional distribution of PE investments by average amount
invested (US$M)
(Please Click the Link at the end of the release)
Growth Capitals Accounts for 78.0% of Investment Strategy
From a strategic distribution stance on PE investment, growth capital still occupied the overriding position. During Q1'08, the aggregate amount totaled US$2.09B, representing 78.0% of the quarterly total. The average of PE deals adopting such a strategy increased to US$77.00M from US$33.00M in 2007.
As mentioned above, the amount invested for Broad IT industry experienced a substantial increase on average. What's the reason behind this change? After Traditional industry experienced a wave of PE financing, spurred by the oncoming launch of 3G applications and the Growth Enterprises Market board,. those PE funds that used to show little interest in Broad IT intend to gradually broaden their portfolios and begin considering investing in high- growth industries represented by Broad IT.
Figure 7: PE strategy allocation by amount invested (US$M)
(Please Click the Link at the end of the release)
Exits Decrease Sharply with IPO and Secondary Offer as Mainstay Options
A total of eight exit events took place in Q1'08, including four IPO events. IPO, representing 50% of the total, remained the primary exit option. Nonetheless, exit events dropped by 38.5% and 78.4% when compared with Q1'07 and Q4'07 respectively. In Q1'07 there were thirteen exits while in Q4'07 the number was thirty-seven. The remaining four exits were realized in the form of secondary offers. Thus, IPO and Secondary offers were the two main options for exit during Q1'08.
The exit market dip in Q1'08, was directly impacted by the dramatic deterioration of international capital markets and the sharp decline of the domestic stock market. It is expected that more exit events will occur in the ensuing two quarters, mainly via IPO and secondary offers, synchronizing the rebound of the stock market.
There were no trade sales (stake transfer between financial investors) or M&A (financial investor transferring stakes to strategic investor) within the survey scope of Zero2IPO.
Outlook for 2008: Excess of US$10B Funds Disbursed in Mainland China
Global capitals are chasing PE markets in China and Asia due to its favorable development. In Q1'08, the total funds invested in China grew to US$20.00B, exceeding the total funds for the whole 2006 year (US$14.20B) and half of the 2007 yearly total (US$35.58B). Through analysis of historical data, the Zero2IPO Research Center projects that the total fund size for 2008 will most likely exceed US$50.00B in China. If there are no unforeseen major market fluctuations, there will be over US$10.00B of funds injected into Chinese enterprises in 2008.
As for industrial distribution, Traditional industry will take a vital position, but the Real Estate industry will encounter a downturn amid market instability and tight monetary policy. The PE allocation in different industries will undoubtedly change substantially. With the expediting process of 3G applications and the integration of the three networks (telecommunication network, computer network and CATV network), Broad IT will receive more funds. As for the industry breakdown, communications and telecommunications sector will develop more rapidly than other Broad IT sub- sectors. In Other Hi-tech sector, the wave of investment in China-based clean tech enterprises will continue in 2008, thanks to the tremendous demand for traditional energy alternatives on the global market.
As for regional distribution, more funds will be invested into regions such as central, western and northeastern China in 2008 compared with previous years.
The 27 growth capital investments accounted for 75% of the quarterly total for Q1'08. Growth capital remained the overriding strategy form. Given the performance of various strategies in Q1'08, it is estimated that growth capital and buyout will remain prominent throughout the whole year. With the launch of the GEM board and the rebound of the stock market, IPO and PIPE will continue to have growth momentum.
For more information please click:
http://www.zero2ipo.com.hk/china_this_week/detail.asp?id=6379
About Zero2IPO Research Center
Founded in November 2001, the Zero2IPO Research Center provides a full range of business research reports and customized research solutions for investment professionals in the Greater China Region. Our research ranges from Venture Capital, Private Equity, IPO, M&A to TMT industries. The Zero2IPO Research Center sets itself apart from competitors as the most prestigious research institute in Chinese VC and PE spheres.
Note about Citation
For any quotations, please note it is quoted from "China Private Equity Report Q1 2008" and send two copies of your newspaper to:
Aileen Huang
Suite 1203, Tower A, Eagle Plaza, No. 26,
Xiaoyun Road, Chaoyang District, Beijing, 100125, China
Tel: +86-10-8458-0476 x8037
Or email the website link of your article to aileenhuang@zero2ipo.com.cn
SOURCE Zero2IPO
International News / Press Release source: PR Newswire
Copyright PR Newswire. All Rights Reserved.