3i aims to close 2-3 China deals this year

By George Chen and Helen Ding

SHANGHAI (Reuters) - British private equity firm 3i Group Plc (III.L) aims to close two or three China deals this year with an investment focus on consumer and retail areas, but it has turned cool on the electronic media and property sectors.

Anna Cheung, a Hong Kong-based 3i partner, said on Tuesday that sharp declines in global stock markets this year have provided good opportunities for private equity firms such as 3i to invest in companies that need capital to support growth.

"Activities might be slower in the last 12 months partly because of valuations," Cheung told Reuters in an interview.

"In the last 12 months, people just have different valuation expectations because of the speculative nature of the (stock) market, which is not sustainable in the long run," she said.

The benchmark Shanghai Composite Index .SSEC has fallen more than 60 percent from its peak last October and is down over 50 percent so far this year, making it the world's worst performer.

"I think last year, we probably -- us and other private equity firms -- were competing with the stock market," she said.

"You find the picture quite different this year."

In China, 3i is currently focusing on the consumer and retail sectors, general industry, resources including clean and renewable energy, and healthcare, and it has also begun to look at other areas including business services, Cheung said.

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It has invested about $300 million in China deals since 2003, including digital advertising company Focus Media (FMCN.O) and Chinese hot-pot restaurant chain Little Sheep (0968.HK), where Cheung sits on its board.

"We are working on a few deals. We have a pretty healthy pipeline now," said Cheung, who earned her MBA degree from the Wharton School in Pennsylvania.

3i typically holds investments in China for three to five years, with the average deal worth $50 million to $100 million, although it would be willing to make much bigger deals in the future if it can the find right opportunities, said Cheung.

"You'll find some people invest in companies six months before IPO at a discount but that's not the deal we do," she said, adding that 3i currently has 10 dealmakers for the China market.

Following the success of Focus Media, which helps clients to place advertisements on LCD screens in buildings or public transportation, many similar but smaller companies have emerged in recent years, attracting funds from foreign firms such as Goldman Sachs (GS.N).

Cheung said 3i would no longer focus on deals like Focus Media.