CHINA'S AMBITIOUS SVT LAUNCHES PRIVATE EQUITY FUND

SVT Group has come a long way in the 12 years since it started life as a small high-tech start-up in the Chinese provincial city of Nanjing. Mirroring the dramatic transformation of China itself into an economic force, a business that was set up by seven individuals with a few thousand dollars has plans to list in the US, acquire a large European company and launch a new private equity fund.

Originally known as Nanjing SVT Electronic Instrument Factory, the company came to prominence when creating the first authentication machines for domestic currency (RMB) used by Chinese banks. Fronted by local entrepreneur Yan Xiao Qun, SVT diversified into telecommunications manufacture using new technologies such as fibre optics, ISDN, ADSL and integrated circuit (IC) design. Between 1993 and 1998, revenues grew from RMB3 million (&€298,000; US$362,000) to RMB300 million (&€29.8 million; US$36.2 million).

In recent years, SVT has sought to take advantage of the Chinese government's privatisation programme, buying up under-performing stateowned enterprises (SOEs) and turning them round. It now owns three listed companies: Shanghai Broadband Technologies, a former steel tubing company restructured through the addition of new high-tech assets; China Textile Machinery, which was acquired to consolidate the textile machinery industry; and Little Swan, which was bought last year with the aim of consolidating the home appliance sector. With Little Swan's purchase, SVT Group took annual revenue to more than RMB20 billion (&€2 billion; US$2.4 billion).

Now classified as a financial holding company, SVT has unveiled even bolder ambitions. One of these is the launch of its SOE PRG fund (PRG stands for “privatisation, restructure, growth”). The fund will aim for a first closing of US$100 million and a final closing of US$250 million. SVT, which will commit 20 percent of the fund total itself, is currently seeking a foreign partner to help with the initial set-up, placement and marketing of the fund.

“The ideal partner will be one with a readiness of commitment in China, experience in restructuring and turnarounds (including buy and builds) and a strong fundraising capability,” says Song Wei, vice president in the international capital department at SVT. “At SVT, besides bringing deal flow with strong Government connections, we will strictly follow international private equity investment practices.”

In a recent interview with Reuters, Yan Xiao Qun said the company was currently looking to buy “a European company with annual sales in excess of &€1.5 billion” as well as the possibility of listing some of its subsidiaries in the US. He also has his sights set on what would be a seminal accomplishment: the day when SVT moves from being a supplier of components as well as finished products (such as Little Swan washing machines) to multinational giants such as General Electric and Siemens to being a genuine competitor.

NEWCOMERS TO EXPLOIT CHINA BOOM
Two new private equity funds have been launched to take advantage of increasing potential for deals in China.

Chinese investment bank CITIC Capital Markets has launched a Y20 billion ($184 million) fund to provide Japanese institutions with access to the Chinese market. Commitments have been received from Shinsei Bank, Sumitomo Trust & Banking and Marubeni Corp.

The CITIC Japan Partners fund will aim to extract further commitments from Japanese as well as other international investors and achieve a final closing by the middle of 2004.

A fund is also being established by Dutch-Belgian financial services group Fortis and China's Haitong Securities Co. The fund, which has a target size of &€100 million ($122 million), will invest in small and medium- sized businesses.

The success of Chinese fundraisings is beginning its make its impact felt in the new investments arena. According to figures from the Asian Venture Capital Journal, China was the leading Asian private equity market in the four months from January to April 2004, with a total of just over US$1 billion invested in 27 deals.

Japan was the second most active market, with US$746.9 million committed to 27 transactions, and Malaysia was third with US$458.3 million invested in three deals.

SOUTH KOREA ENCOURAGES DOMESTIC FUNDS
South Korea is responding to the dominance of overseas private equity firms in the country by introducing new legislation to promote the establishment of local funds.

The ministry of finance said it would seek to push through measures as early as next month designed to level the playing field. They include easing restrictions on the ability of South Korea's large industrial groups, known as chaebol, to invest in domestic private equity funds.

All the major private equity-led takeovers of recent times in South Korea have been led by foreign – usually US-based – funds. In May 2004, Citigroup acquired a 97.5 percent stake in KorAm Bank from Carlyle Group, JP Morgan Partners, PPM Ventures and CDPG International for an undisclosed sum.

Last year, Lone Star acquired Korea Exchange Bank for US$1.2 billion, while Newbridge Capital and insurer AIG took a 40 percent stake in Hanaro Telecom for US$500 million.

PE MAY TAKE ROLE IN MITSUBISHI RESCUE
Mitsubishi is reported to be turning to private equity as it draws up a multibillion dollar rescue plan for carmaker Mitsubishi Motors (MMC).

Reports from various sources say the group has held talks with Phoenix Capital, a Japanese private equity company led by former Mitsubishi executive Yasushi Ando. Mitsubishi is understood to want Phoenix to acquire a Y100 billion parcel of shares in MMC and then re-package them for sale to other investors – though neither party has confirmed that such talks have taken place.

The future of MMC was thrown into doubt last month when DaimlerChrysler, which is MMC's largest shareholder with a 37 percent stake, refused to participate in a rescue package.

IPO DOWNER FOR AUSTRALIA'S JUST GROUP
The poor reception given to clothing retailer Just Group on the Australian Stock Exchange suggests private equity-backed IPOs in the country may struggle to retain their momentum.

In the first three months of 2004, there were 81 percent more new issues than during the opening quarter of 2003, with private equity firms leading the way. Typical of the trend was the IPO of Pacific Brands, which netted a reported profit of AS$1.1 billion for Catalyst Investment Management and CVC Capital Partners.

But Catalyst, which also backed Just Group, saw its potential profits slashed when the company listed at AS$2.10 per share, having set an initial price range of AS$2.25 to $AS2.60. By the close of the first day of trading in the shares, they had fallen a further six percent to AS$1.97.

However, this has not stopped Sydney-based CHAMP Ventures from announcing plans to list Bradken, a steel parts provider, for up to AS$420 million by the end of May. CHAMP acquired Bradken from Smorgon Steel Group for approximately AS$187 million in December 2001.

AIRASIA SEEKS US LISTING
Malaysian budget airline AirAsia has said it is considering an IPO on both the New York Stock Exchange and Nasdaq.

The airline, which is re-igniting its flotation plans after putting them on hold for a while, is backed by a group of private equity investors including Islamic Development Infrastructure Fund, US/Middle Eastern private equity firm Crescent Ventures and Germany's Deucalion Capital.

THAILAND SET FOR PRIVATE EQUITY
The Stock Exchange of Thailand (SET) has announced plans to invest 2.2 billion baht (&€45 million; $54 million) of surplus cash in private equity funds. SET president Kittirat Na Ranong said the planned investment was part of Government policy to increase activity in the stock market. SET cannot launch its own private equity fund, as it is barred constitutionally from acting as both investor and regulator.