Record US$72.51bn raised in China last year by private equity firms and venture capitalists, 49pc growth

Yuan funds valued at US$54.89bn, up 177pc and accounted for 76pc of total fundraising, up from 40pc in 2015

PUBLISHED : Thursday, 23 February, 2017, 3:10pm
UPDATED : Thursday, 23 February, 2017, 10:04pm

Private equity and venture capital fundraising in China is expected to continue apace in 2017, bolstered by a surge in yuan-backed funds, after rising to a record high last year, PwC said on Thursday.

Yuan funds dominated PE and VC fundraising for the first time in 2016, with a plethora of mid-small yuan funds raising money for domestic investment, A-share related activities and exits as China’s tighter foreign exchange control made it more difficult for US-dominated deals, the accounting firm said.

In 2016, a record US$72.51 billion was raised by private equity firms and venture capitalists, annual growth of 49 per cent. Among them, yuan funds were valued at US$ 54.89 billion, up 177 per cent than a year ago, and accounted for 76 per cent of total fund-raising of the sector, up from 40 per cent in 2015.

“Yuan-backed funds are expected to remain a dominant force in shoring up fundraising in 2017 and 2018,” said Frank Shan, a partner with PwC in Shanghai.

He added the yuan funds’ contribution could be even higher thanks to the lack of need to go through foreign exchange regulations as dollar funds do, swift decision-making, and if the exit process in the A-share market remains smooth in the future, he added.

Yuan-backed funds are expected to remain a dominant force in shoring up fundraising in 2017 and 2018
Frank Shan, PwC partner, Shanghai

From 2012 to 2015, the contribution of yuan funds had been stable at less than 50 per cent.

But China has tightened its foreign exchange controls including closer scrutiny of overseas investments and money remittances as the yuan has continued to devalue.

Kast year the currency posted its biggest annual loss against the greenback since 1994, weakening by nearly 7 per cent, making it the worst performing major Asian currency that year.

The PwC figures showed exits through initial public offering reached a record high of 165 deals, up 38.7 per cent than a year ago. However, exit deals through merger and acquisition fell unexpectedly to the lowest level in four years.

The business advisory firm expects IPO exits to continue the primary exit strategy of PE and VC investors as confidence remains high in the Chinese corporate sector.

“Exit through the A-share market is expected to accelerate in 2017, although the valuations may drop,” added fellow PwC Shanghai partner, Dylan Tey.

Looking at IPO exits by volume, the A-share market remained the dominant channel as a combined 142 were seen in Shanghai and Shenzhen, while 17 exits were made in Hong Kong.