China's PE market rebounds amid IPO boom in 2010

Mon Jan 10, 2011 5:03am EST

* 82 new China PE funds raise $27.6 bln last year-data

* Revival driven by China IPO and government support

* Healthcare, clean-tech and retail among most popular

By Samuel Shen and Jacqueline Wong

SHANGHAI, Jan 10 (Reuters) - China's private equity market rebounded last year with the number of funds launched and deals both rising to record levels as an IPO boom lured investors into an industry once hit by the global financial crisis, data showed.

In 2010, 82 China-focused private equity funds were set up, raising $27.6 billion yuan. That was more than double the $12.96 billion yuan raised by 30 funds during the previous year, according to Beijing-based fund consultancy Zero2ipo.

The revival was driven by a boom in China's initial public offering market, as well as Beijing's support toward private sector investment in the aftermath of the 2007-2009 financial crisis to sustain economic growth.

"The explosion in China IPOs have greatly aroused investor appetite toward private equity investment," said Poddy Feng, analyst at Beijing-based consultancy ChinaVenture Group. "I expect this trend to continue."

China was the world's biggest IPO market last year, with 347 companies including Agricultural Bank of China (601288.SS) and Everbright Bank (601818.SS) raising nearly 490 billion yuan ($73.92 billion) through first-time share sales in the domestic A share market. That was 1.5 times the amount raised in 2009.

Benefiting from the IPO boom, private equity firms pulled out of their China investment in record numbers, with 160 existing via IPOs, compared with just 95 during the 2007 bull market, Zero2ipo said.

In terms of investment, there were 363 deals last year with a combined value of $10.38 billion, which was 1.2 times the deal volume in 2009.

BLACKSTONE, CARLYLE, TPG

Private equity firms were rushing to launch yuan-denominated funds last year, as the government encouraged investment in unlisted firms in a bid to fuel economic growth and create new jobs.

Global buyout firms including the Blackstone Group (BX.N), the Carlyle Group [CYL.UL] and TPG [TPG.UL] all launched yuan funds in partnership with local governments or companies, after the government relaxed rules allowing them to do so.

Of the 82 private equity funds set up last year, 71 were denominated in the Chinese currency CNY=CFXS, although they only raised a combined $10.7 billion, compared with $16.94 billion by generally much bigger hard-currency funds.

Zero2ipo estimated that 31 private equity funds set up last year have not yet finished fundraising, and they target to raise a combined $12.2 billion.

Highlighting investor sensitivity to central government policies, 68 new funds last year were targeting growth companies, while 10 were real estate funds and four M&A funds.

Sectors that receive support from authorities gained investor favour, with biotechology, pharmaceutical and healthcare ranking among the most popular industries, followed by clean-tech, machinery, food & beverage and retail, Zero2ipo said. ($1=6.629 Yuan)

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