SOEs set to team up with private equity investors

PUBLISHED : Friday, 22 June, 2012, 12:00am
UPDATED : Friday, 22 June, 2012, 12:00am


Mainland state-owned enterprises (SOEs) and global private equity firms are seeking opportunities to collaborate in outbound investments.

Gerson Lehrman Group (GLG), a US-based research firm, hosted a summit in Beijing yesterday with the research centre of the State-owned Assets Supervision and Administration Commission (Sasac), bringing together 300 executives and researchers to 'discuss opportunities, challenges and models for co-investment', Matthew Creedon, managing director of GLG in Asia, said.

Beijing is actively seeking ways to help companies go abroad, capitalising on the country's rising economic might. Deputy Commerce Minister Gao Hucheng said last week that Beijing would act as a matchmaker, helping more Hong Kong and mainland firms form consortiums to invest overseas.

Li Baomin, director of Sasac's research arm, said new guidelines issued last month by the regulator had made co-investment possible.

'The guidelines made clear for the first time that equity funds can be set up between private investment entities, or between a private investment entity and an SOE,' Li said, according to a newsletter from the conference, which was closed to the media.

'Such funds could co-invest with SOEs to strategically invest in emerging industries as well as to evaluate outbound investment opportunities. It can be a win-win situation.'

Beijing began encouraging SOEs to go abroad in 2007 when it attempted to encourage capital outflows to combat stubborn inflation. Mainland companies have grappled with regulatory hurdles in the past to complete overseas acquisitions because of foreign political opposition.

Andre Loesekrug-Pietri, managing partner of A Capital, a Europe-China private equity fund, said many SOEs feel more comfortable working alone and acquiring majority stakes, but when expanding abroad, this could be a challenging approach.

'Minority transactions may allow them to access better assets, lower downside risk, build upon an existing management team and reduce the risk of political resistance towards a Chinese investor,' he said.

Mainland companies could pour US$25 billion a year in direct investments into Europe over the next decade, New York-based research and advisory organisation Rhodium Group said in a report earlier this month.