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Listing drought and poor sentiment weighs on private equity

HK listing drought and poor sentiment on the mainland hits private equity industry strategy

PUBLISHED : Friday, 16 November, 2012, 12:00am
UPDATED : Friday, 16 November, 2012, 12:41pm

The wave of pricey share listings in Hong Kong and on the mainland driven by strong buying momentum is unlikely to be repeated soon, a senior executive of Blackstone said yesterday.

Michael Chae, a senior managing director and head of international private equity at the New York-based investment firm, said the listing drought in the city and poor sentiment on the mainland had "weighed down" the "exit dynamic" of the private equity industry in Asia.

"A lot of initial public offerings in China and Hong Kong were priced at high valuations based on momentum," said Chae, who was speaking at the Asian Venture Capital Journal private equity forum in Hong Kong.

He said aggressive pricing in the past had chipped away at investors' confidence in IPO shares.

"A difficult exit environment is probably the side effect of the IPO booms in the previous several years," Chae said.

He said market-oriented reform in the mainland's equity market could take a while before it helps bring about a fundamental change in investor sentiment and a revival of the IPO market.

Derek Sulger, founder and partner of Lunar Capital, a China-focused private equity firm, said selling existing projects to strategic domestic buyers who seek synergy is an exit option that can be considered.

"Holding a majority stake with a controlling interest adds safety to our investment," said Sulger, a former banker with Goldman Sachs in London.

Sulger said secondary buyouts that involve another private equity firm could also be another doorway out for investors.

On a different note, a senior partner at a London-based private equity firm said the way an investment idea is pitched is often "not simple enough" to appeal to investors.

"Unlike in the developed markets in the West, Asian- based investors prefer to invest in listing candidates that demonstrate a down-to-earth business model," said the manager, who arranged a Hong Kong listing for a US-based company last year.

The veteran private equity manager said only 30 per cent of the deals in his firm's Asian portfolio can exit through a public listing, below the success rate of his counterparts in the West.

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