Big buyout firms find size isn't all in China business

Some of the world's biggest private equity players are learning the hard lesson that size does not guarantee success when it comes to making investments in China.

Industry sources have told the South China Morning Post that US buyout giant TPG Capital recently began to sell its entire holding in a Shanghai-based leasing firm, ending a bad five-year relationship with it.

Many industry watchers described it as a textbook case of how challenging the deal-making environment in China is, despite all the upbeat news headlines.

"Apparently, TPG wants to put the story to an end," said one source. "Everybody is more cautious than a couple of years ago when making deals in China. We've seen many [similar] cases, and lessons should be learned."

TPG's plan to exit from its investments in UniTrust Finance & Leasing Corp, formerly known as Nissin Leasing (China), came after some of its rivals ran into difficulty doing deals or managing local firms on the mainland, despite pouring money into China in a bet on business growth.

In 2008, TPG bought a 60 per cent stake in Nissin for US$275 million. Just a few months later, a dispute erupted with the firm's local management. The Financial Times reported that police were called in when the local managers tried to stop TPG representatives taking control.

TPG later managed to calm the situation and improved its relationship with those managers, but by then the case had already attracted industry attention.