FROM EAST TO WEST

While private equity firms have been agonising over the conundrum of how best to get into China, a newly launched equity finance house in London is busy helping small Chinese companies get out of the country to list on stock exchanges in the West.

SovGEM, which listed on London's Alternative Investment Market (AIM) this month, has been set up to sponsor Chinese IPO candidates to help cover the cost of going public. The firm aims to invest up to $1 million (€750,000) per transaction, taking up to five percent of equity in each company.

SovGEM has entered into an exclusive agreement with Chinese investment bank Benchmark Capital, under which Benchmark will provide opportunities to SovGEM to back companies that are expected to float within three to six months.

Explaining the rationale behind the set-up, SovGEM CEO Hugh de Lusignan told PEI: “A foreign listing can ensure that a company's recognition, trust and above all status will be significantly enhanced, which can be very important for Chinese companies.”

De Lusignan says smaller Chinese companies are precluded from listing on the Shanghai exchange, which he maintains is dedicated principally to state-owned enterprises and has the further hurdle of very strict listing procedures. “The focus of our activity is on young, private companies which may not have three years of profitable trading and which may wish to list abroad,” he explains.

The opportunity is extensive, according to de Lusignan: “Exact numbers are hard to quantify, but we believe there are many thousands of private companies in China that fulfil the basic listing criteria for NASDAQ and other foreign exchanges.”

SovGEM intends to look at companies on a case-by-case basis before deciding which is the most appropriate exchange for them to list on. De Lusignan confirmed that the firm's first deal, which is in the pipeline, will list on a US exchange. To date, more than 70 Chinese companies have raised capital and obtained listings on the US equity capital markets.

Through its own AIM listing, SovGEM raised £3.2 million (€4.5 million; $6 million) of working capital that will allow the firm to back six to eight deals per year. “We're not long term holders – we will do the requisite financing to float a company and then exit,” says de Lusignan.

NEW $200M CHINA VEHICLE LAUNCHED
London Asia, the London-based AIM-listed investment bank focused on China, has joined forces with New York investment group Global Emerging Markets (GEM) to launch a new $200 million (€153 million) fund for investment in China. The fund will target later-stage investments in midmarket companies in the Greater China region including China, Taiwan, Hong Kong and Southeast Asia. It will take “significant” stakes in each acquisition, will seek board representation, and be actively involved in the strategic direction, financing and acquisition strategies of portfolio companies.

The fund will be jointly managed, with GEM taking responsibility for all technical, legal and compliance operations, while London Asia will use its offices and network in Greater China to identify opportunities, manage investments and assist in the exit of portfolio companies on UK and Asian markets.

FIRST SUCCESS FOR AUSTRALIAN FUND STRUCTURE
Starfish Technology I, the first private equity fund to be established under Australia's new Venture Capital Limited Partnership (VCLP) structure, has posted a final closing on AUD$123 million (€74 million; $96 million) – beating a target of AUD$100 million. Managed by Melbourne-based Starfish Ventures, the fund – which is the successor to the 2001 vintage Starfish Pre-Seed Fund – will target Australian companies in the information and communications technology and life science sectors.

The VCLP structure was introduced by the Australian Federal Government to remove key barriers to attracting international investors to the Australian private equity market. The structure is flow-through for tax purposes, and provides certain foreign investors with tax exemption on capital gains.

DOUBLE HIRE AT NEWBRIDGE
Pan-Asian private equity firm Newbridge Capital has boosted its ranks with the hiring of two seasoned professionals. Timothy Dattels has joined as a managing director from Goldman Sachs, where he was a partner and head of investment banking for all of Asia except Japan. Meanwhile, John Olds has signed up as a senior adviser with particular responsibility for Newbridge's investment in China's Shenzhen Development Bank, in which Newbridge acquired a controlling interest for $145 million ($109 million) in June 2004. Olds was a former chief executive and vice chairman of the Development Bank of Singapore. Newbridge was founded in 1994 as a joint venture between US private equity firms Texas Pacific Group and Blum Capital.

Separately, Newbridge Capital is reported to be lining up a sale of its 48.56 percent stake in Korea First Bank. HSBC is thought to be interested in acquiring that stake plus the 48.49 percent held by Korea Deposit Insurance Corp for around $3 billion.

INDIAN GROUP ATTRACTS $50M FROM MERLION
Merlion India Fund, a joint venture managed by Standard Chartered Bank and Singapore's Temasek Holdings, has invested $50 million in Punj Lloyd, an Indian industrial group with interests in construction, building liquefied natural gas terminals and telecom services. The $100 million fund has invested in fixed income instruments of Punj Lloyd, which will be converted into equity holdings at the end of a three year term. According to a source close to the deal, the conversion price and stake that Merlion will get in Punj after three years will depend on the company's performance.

BAIRD SETS UP SHANGHAI REP OFFICE
Baird Capital Partners, the US midmarket private equity firm, has launched a representative office in Shanghai to support the activities of its existing portfolio companies in China. The office is Baird's second in Asia, following the establishment of a Hong Kong office earlier in the year. The firm now has a total of 20 professionals in Asia helping evaluate, develop and execute appropriate Asia strategies on behalf of portfolio companies. The strategies include distributing products into Asia, developing sourcing relationships and establishing operations in China. Baird, which has $1 billion under management and provides growth and buyout capital to US mid-market companies, said it has no plans to invest directly in Asian companies.

3I HAS BIG PLANS FOR INDIA
London-listed global private equity firm 3i has formulated plans to expand its activities into India in the first half of next year, according to reports. Following an interview with Chris Rowlands, 3i's new head of group markets, Reuters reported the firm was intending to invest an initial $150 million (€123 million) a year in the country and was anticipating two to three deals a year worth up to $50 million each. Reuters also said 3i is currently looking to hire a team in India to invest in the financial services, healthcare, export-led manufacturing and consumer-related sectors.

3i, which pulled out of Japan last year, has existing Asian investments in China, Korea and Singapore. Overall, the firm's Asian investments account for around two percent of the $10 billion the firm has currently invested around the world.

CARLYLE HINTS AT NEW ASIAN PUSH
Washington DC-based private equity firm The Carlyle Group has announced plans to beef up its activities in Asia. Founding partner and managing director David Rubenstein said the firm was planning to invest $1 billion more per year than it is currently doing in Asia over the next few years. He told the Asian Venture Forum in Hong Kong that Asia was “probably the place with the greatest growth over the next five to ten years”. Carlyle, which has more than $1.5 billion of committed capital in Asia through four dedicated funds, recently invested $15 million in Target Media Network, a Chinese outdoor advertiser.

GE TO SELL BPO ARM TO US VCS
US-based industrial giant General Electric has entered an agreement to sell a 60 percent stake in GECIS, its Indian business process outsourcing (BPO) arm, to US private equity firms General Atlantic Partners and Oak Hill Capital Partners for $500 million. Under the terms of the deal, GE will retain a 40 percent stake in GECIS, which will continue to serve GE. The current GECIS global management team will be retained, as will around 1,000 employees. The parties are aiming to conclude the transaction within the next six months.