China-focused Welkin seeks London IPO, offering play on US$1.8 trillion market for unlisted mainland firms while private equity peers focus on Hong Kong

The PE firm aims to raise up to US$300 million, offering global investors access to fast-growing unlisted companies in mainland China
Hong Kong-based PAG Capital and Shenzhen-based Tiantu Capital filed to list in Hong Kong amid audit dispute between Beijing and Washington

IPO

Iris Ouyangin Shenzhen

Published: 7:22pm, 6 Sep, 2022

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A Hong Kong-based private group has become the second Chinese company this year to seek a listing in London, offering global investors a chance to participate in the US$1.8 trillion market for China’s fastest-growing unlisted firms.

Welkin China Private Equity (WCPE) joins peers vying to raise capital through initial public offerings, as Chinese firms turn to alternative listing venues because of an unsolved audit dispute between Beijing and Washington. The PE fund is managed by Hong Kong-based Welkin Capital Managment (Asia) Ltd.

WCPE aims to raise up to US$300 million, with the proceeds to be used for future investments with 15 per cent long-term total return target, according to its prospectus. Its first purchases would be a US$15 million stake in Welkin Fund II, and equity interests in 10 underlying portfolio companies worth US$15 million.

“[London] has a very deep pool of liquidity. There’s a long history of investment companies listed there,” Ivan Chu, chairman of WCPE, said in an interview. “It is a good place to engage shareholders.” The Welkin team has deep local market expertise and a good understanding of the Chinese business and policy environment, he added.

Chinese listings in London in the past five years

The listing, if successful, will make Welkin the second Chinese company to land on the UK stock market this year, after Ming Yang Smart Energy Group’s US$707 million fundraising in London in early August. It could add momentum to a flight of firms from American to European capital markets.

Back in 2020, three Chinese companies turned to the London Stock Exchange, while only Huatai Securities made it to the market between 2017 and 2019, according to data from Refinitiv. There were none in 2021.

“We expect to see continued interest in diversification and access to international capital for Chinese issuers that are continuing to seek growth and expansion,” said Ivy Wong, Asia-Pacific chair of capital markets practice at law firm Baker McKenzie.

The return of some Chinese firms comes at a time when the nation’s biggest companies have all but shunned US exchanges amid audit scrutiny. At least 168 companies with a combined market value of US$1.5 trillion are at risk of being delisted from the world’s largest capital market.

Welkin Capital Management’s CEO and co-founder Johnny Kong. Photo: Handout

That prompted Chinese authorities to create bridges for domestic firms to raise funds in European capital markets such as those in Switzerland and Germany. The Shanghai-London Stock Connect, launched in 2019, has served as an additional funding channel for Chinese companies.

Welkin’s private-equity portfolio includes vehicle services platform Tuhu Car which is filing for an IPO in Hong Kong, according to its website. Other notable bets are China’s largest private carrier Juneyao Airlines, local craft beer brand Great Leap Brewing, and the operator of private international K-12 schools Aidi Education.

Welkin, with around US$500 million of external assets under management, is looking into a pipeline of investment opportunities worth the same amount, focusing on sectors such as advanced manufacturing, enterprise solutions and home-grown consumer brands.

Welkin Capital Management, investment manager of WCPE, delivered a compounded annualised return of 28 per cent for all investments across all Welkin Funds up until December 2021, the firm said.

The assets under management in China’s private equity market are worth at least US$1.8 trillion, according to Welkin.

“What a great time to be starting, when a number of players are seeking liquidity and looking to get out [exit their investments],” said Jonathan Lau, managing director of Welkin Capital Management. “We can actually choose what we’d like to acquire. Some would even call it a buyer’s market.”

Investors including pension funds are trying to rebalance their portfolios amid sluggish sentiment and a slowing global economy, according to the Welkin executives. It offers a chance for the team to leverage low valuations amid less competition in the Chinese market, they said.

Even though many were hit hard by the pandemic, Welkin executives see opportunities in leading SMEs which are enjoying favourable government policies ranging from lower tax rates, an increase in bank loans, government-spearheaded procurements, and more fundraising access such as the Beijing Stock Exchange.

Welkin is not the only Chinese PE firm turning to the public market for funds. Hong Kong-based PAG, one of Asia’s biggest PE companies, filed an application to the Hong Kong stock exchange in March to raise up to US$2 billion to fund new deals. Shenzhen-headquartered Tiantu Capital submitted its IPO application in Hong Kong on June 30.

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