China: high barriers to foreign takeovers

The news that Goldman Sachs Capital Partners' bid for Hunan-based meat processor Shineway Group had gained approval from China's State Owned Assets Supervision and Administration Commission (SASAC) appeared to go against the grain of recent developments in the country.

After all, in August, six government agencies – including SASAC – collectively issued new rules relating to the acquisition of Chinese state assets and strategic industries by foreign investors. The rules, which replaced provisional measures that had been in effect since 2003, provided little clarity – failing, for example, to list the industries in which foreigners would be prevented from gaining a significant foothold. However, the central tenet of the legislation appeared to be greater, rather than lesser, state control over bids involving domestic assets.

In light of this, Goldman's success appeared something of an anomaly. Unfortunately, both for Goldman and other foreign investors seeking access to China's treasure trove of potential bid targets, it may also prove to be something of a false dawn. The Shineway deal has made its way through one level of bureaucracy, but now requires further approval from the Ministry of Commerce (MOC) before it can complete. Recent press reports have suggested that some members of the MOC are known to be opposed to the deal.

Optimists in the Goldman camp might at least take some consolation from having apparently edged past The Carlyle Group in the race to be the first foreign investment group to take control of a Chinese state-owned enterprise. Carlyle, whose $375 million bid for Xugong Construction Machinery Group was agreed with the target in October last year, has yet to obtain approval from either SASAC or the MOC. According to the Taipei Times, a high-profile meeting was held last month between Carlyle and the Beijing authorities to discuss a possible way forward – but it is not yet known whether these talks bore any fruit.

Meantime, the global private equity community looks on in the hope that a Chinese buyout can eventually reach the finishing line. Until one does, the likes of Japan, Australia and India will continue to be viewed as more attractive locales for the deployment of capital in Asia Pacific.

Morgan Stanley's Asia Pacific private equity group is acquiring 10.7 million shares in unlisted Rotem Company, a railway vehicles manufacturing affiliate of Korea's Hyundai Motor Group, for KRW 85 billion ($89 million; €69 million). The shares are equivalent to a 20.7 percent stake in Rotem. Hyundai Motor is disposing 10,658,357 of its shares in Rotem at KRW 8,000 a share in a “strategic capital alliance with Morgan Stanley,” the company said in a regulatory filing.

Matrix Partners, a US venture capital firm, has raised $150 million for Matrix India Fund, a multi-sector, multi-stage fund co-founded by local partners Avnish Bajaj and Rishi Navani. Bajaj was the co-founder, chairman and chief executive officer of, an Indian online marketplace that was acquired by eBay. Navani was previously managing director at Westbridge Capital Partners, an Indian VC which merged with Sequoia Capital in May. Based in Mumbai, Matrix India will focus on consumer services, including internet, mobile value-added services, financial services, media/entertainment and travel/leisure companies.

CVC Asia Pacific, a joint venture between Citigroup and European buyout firm CVC Capital Partners, has lost Percy King, managing director responsible for the group's Greater China investments and Chris Heine, deputy managing director responsible for Southeast Asia. David Seto, a managing director responsible for CVC Asia Pacific's finance and administration, has retired. The departures happened over three months. Roy Kuan, a partner, previously based in Tokyo, has since relocated to Hong Kong to oversee CVC's Greater China efforts. According to an investor with CVC Asia Pacific, it is unclear why the trio left. Meanwhile, the firm has promoted Adrian Warner, a director in its Australian office, to managing director. He joined CVC in 2001, and helped set up the firm's operations in Australia.

DCM-Doll Capital Management, a US-based VC firm, has made a final close on $500 million (€390.7 million) for its fifth venture fund. The new fund was oversubscribed, with nearly all DCM's existing limited partners committing capital to DCM V, which will invest in DCM's focus area of early-stage IT companies within the US, China and Japan. DCM typically invests $3 million to $7 million initially in a company, and may invest up to $15 million in total. The new fund is expected to begin investing later this year or early next year.

Warburg Pincus, a global private equity manager that has been operating in India for 11 years, is investing Rs 2.8 billion (€47 million) in a local hotel operator, its first investment in India's hospitality sector. Warburg Pincus is investing Rs 2.1 billion in the expansion of mid-priced Lemon Tree hotels, which target business and leisure travellers, and Rs 700 million in a new chain of budget hotels called Red Fox Hotels. Established in 2002, the New Delhi-based hotelier operates two hotels in Gurgaon, and plans to launch two more hotels in Pune and Goa this year.

3i, Europe's biggest quoted private equity firm, has made its first foray into real estate by investing $40 million (€31 million) in an India-focused real estate venture capital fund. 3i made the investment in the Offshore Fund being launched by INDIAREIT, a $160 million boutique real estate venture capital fund promoted by Indian business tycoon Ajay Piramal and managed by Ramesh Jogani. The fund will target specific residential, commercial and retail sectors in southern and western parts of the country.

US buyout firm Kohlberg Kravis Roberts has appointed Hisashi Hosokawa as a senior advisor in Japan. Hosokawa is a former vice minister for international economic affairs in Japan's hugely influential Ministry of International Trade & Industry, a government agency which was renamed the Ministry of Economy, Trade and Industry in 2001. He's also been a non-executive advisor to the Long Term Credit Bank of Japan (now Shinsei Bank), and has served on the boards or as an advisor to several Asian companies.

Henderson Private Capital has hired Carol Lee and Sigit Prasetya as senior principals in its Hong Kong and Singapore offices, respectively. Lee has 12 years of private equity and investment banking experience after working at Merrill Lynch and JP Morgan in New York and Hong Kong, doing deals across Asia. Prasetya has 13 years of relevant experience, including investment banking, private equity and management consulting. He joins from Morgan Stanley, where he was the head of its investment banking business in Indonesia and responsible for the firm's financial institution business in South East Asia.

Ilshin Investment, a Korean venture capital firm, and Australia's Macquarie Bank have raised $100 million (€78 million) to fund mid-market expansion and buyouts of Korean companies. The fund will invest in around six or seven deals, and each transaction will range between $10 million to $20 million. For buyouts, there is the option to co-invest with a strategic partner for transactions worth up to $100 million. Ilshin focuses on manufacturing, service and late-stage technology. It also considers companies involved in electronic components, shipbuilding, specialty chemicals and automobile parts.

Affinity Equity Partners will start raising its Fund III, with a target of at least $1.5 billion (€1.2 billion) before the end of the year. A source close to the fund said internally Affinity was targeting $2 billion. Affinity's Fund II, which closed on $700 million, in October 2004, is expected to be fully invested toward the end of the year, according to another source close to the fund manager. Affinity has also commenced the process of selecting a placement agent for the new fundraising exercise. Credit Suisse First Boston was engaged as its placement agent for Fund II.

Gresham Private Equity, the buyout arm of Australian-owned Gresham Investment House, has acquired Witchery, an Australian women's clothing chain for a reported A$130 million ($98 million; €78 million). The investment will be made from Gresham Private Equity Fund Two, a A$325 million investment vehicle. The fund will be close to half invested following the acquisition of Witchery, Roy McKelvie, Gresham's managing director said. Witchery has 75 stores in six states and territories across Australia.

Navis Capital Partners, a ([A-z]+)-based private equity firm, has completed a management buyout of Wendy's, an ice cream company founded in 1979. Navis invested about $20 million (€15.8 million) in the transaction which values the enterprise at A$30 million to A$40 million. National Australia Bank is providing debt financing for the investment, which was made from Navis Asia Partners IV, a $315 million fund. Wendy's, which operates about 300 ice cream retail outlets in Australia and New Zealand, is Navis' fourth investment in Australia. Navis typically focuses on investments in South and Southeast Asia.