Teaming with Taiwan

Private equity firms may become the partners of choice for Taiwanese companies seeking a way of upping their exposure to China.

Taiwanese companies were investing in mainland China long before private equity gained a toehold in the region. But while financial investors are now flooding into the country, Taiwan’s corporates are finding their expansionist ambitions held in check by restrictive legislation.

Taiwan: partnering with private equity for China exposure

Specifically, a Taiwanese company is only allowed to invest a percentage of its net worth in China. For example, companies with a net worth of TWD5 billion ($156 million) and below can invest only up to 40 percent ($62.4 million) in the country, while those worth TWD10 billion and up may only invest 20 percent, a financial controller at a Chinese subsidiary of a Taiwanese corporate told PEI Asia.

“These are not big amounts. That is why lots of Taiwanese companies have problems investing in China,” said the financial controller.

But while Taiwanese corporates may initially have felt some pangs of jealousy at
private equity firms’ ability to invest larger slugs of capital, they are now coming to appreciate that by teaming up with such businesses, they are able in many cases to overcome the restrictions.

One example of a company that may seek to exploit this opportunity is Taiwan’s
largest food product firm, Uni-President Enterprises Corp, famed for its Tung-I instant noodles, which has been trying to expand its beverage portfolio in China.

The company has been in talks with a few private equity firms, a company official told PEI Asia. Goldman Sachs Capital Partners also expressed an interest in pursuing negotiations, she added. The reason for such discussions is that Uni-
President’s appetite to consume Chinese assets is in danger of pushing it over the investment limit imposed by the regulators.

Uni’s Chinese subsidiary, President Enterprises (China) Investment, has been
expanding its beverages business by acquiring stakes in producers and/or distributors over the past two years. Investments include minority stakes in fruit juice producer Hui Yuan Juice Holdings, Jianlibao, the country’s number three beverage firm after Coca-Cola and Pepsico, and China’s second-largest milk powder producer, Heilongjiang Wondersun Dairy Co.

For businesses like Uni-President, private equity can open doors to investment
opportunities that are otherwise difficult to access. Meanwhile, from private equity’s viewpoint, partnering with such a company is attractive because it is “known, proven and sustainable,” a China-based private equity investor told PEI Asia. One can reasonably expect such co-operations to become more common in future.

This article appears in the first issue of Private Equity International Asia, the new monthly magazine for private equity in Asia, Australia and the Middle East. Further details can be found at http://www.peiasia.net/.