Funds raise $4bn for China, deals dip

Private equity investments in China for the month of August decreased by as much as 72 percent from July, in what is likely a reflection of slowdown in business activity during the Beijing Olympics.

Seven private equity funds raised a total of $3.95 billion (€2.75 billion) last month for investments focused on mainland China, a slight increase from the amount raised in July.

In the same month, 34 private equity firms invested in 16 Chinese companies. Of the 16 companies, 14 disclosed a total of $365 million received in investments, an average of about $26 million per transaction, according to the Zero2IPO Research Center, a Chinese venture capital and private equity service provider.

The service sector saw the biggest inflow of private equity capital, reflecting investors’ inclination to invest in companies that bank on the growing consumer demand in China. There was a total of $160.6 million invested in three deals in the service sector. The largest deal in August was ARC Capital Holdings’ $73 million investment in Orient Home, a home improvement retailer.

In terms of the amount of investment received, the service sector was followed by cleantech, manufacturing and related traditional sectors, information technology, and biotech and life sciences.

The numbers represent a sharp fall from the month of July, when a total of about $1.32 billion was invested in 22 deals in mainland China. The average deal size in July was more than double that of August at about $60 million. The average investment amount declined in the context of a “flat venture capital/ private equity market”, according to the report.

There were just two private equity-backed IPOs of Chinese companies last month, which is not surprising considering the turmoil in the stock markets globally.

However, in a move that is likely to please private equity firms investing in China, the Shanghai Stock Exchange and Shenzhen Stock Exchange have ruled that private investors will be permitted to offload their stakes in listed companies after one year of their listing, instead of waiting for three years, as is the case now.

The change in regulation will ease the exit process for private equity firms, which subsequently is likely to lead to an increase in private equity investments in the country.