OCBC launches $100m China PE fund

The Singaporean bank will use the QFLP-registered vehicle to increase its exposure to China PE.

The Overseas-Chinese Banking Corporation (OCBC Bank) has joined the Shanghai Qualified Foreign Limited Partner (QFLP) pilot programme, launching a $100 million private equity fund to tap onshore opportunities in China, according to a company statement.

The vehicle, named the OCBC Capital (Shanghai) Equity Investment Fund, is using the license obtained from the Shanghai QFLP programme to invest in China but avoiding extensive regulatory approval processes and currency conversion.

OCBC’s license will now allow the fund to convert up to $100 million worth of foreign denominated capital into RMB to make direct investments into Chinese companies.

The establishment of OCBC Capital comes as the Singapore-based bank ramps up its activities in China.

“It [will] pave the way for us to increase our private equity activities in China over the next five years. China is expected to be a dominant private equity market in Asia. It is a key market for us and one that we intend to make further inroads into as we continue to raise our profile and build our networks in the country,” Su Ee Than, OCBC’s head of mezzanine capital unit, said in a statement.

The Shanghai QFLP was launched in January 2011 and has received more than 20 applications from foreign investors.

Without the QFLP, companies in China must set up an offshore structure in order to receive foreign currency funds, which are then brought back onshore and converted into RMB for domestic investments. Those investments are then subject to extensive regulatory approvals.

“The establishment of the private equity fund under the QFLP pilot programme is a significant development for OCBC’s private equity activities in China. The ability to make direct local currency investments into Chinese companies helps to a certain extent level the playing field, enabling us to compete more effectively against the local private equity fund managers, Than continued.

While a number of well-known institutions have participated in the QFLP programme, Shanghai has struggled to successfully implement the initiative and experienced problems early on.

For example, regulators ruled in May 2012 that foreign-sponsored RMB-denominated funds raised through the QFLP programme will not receive the same treatment as domestic funds, referring specifically to a fund raised by Blackstone, PEI reported earlier.