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| Feature: Eastern Promise |
Perilous Paths to China
Rebecca Fannin
09/01/2005
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More recently,
Newbridge made a $350 million
investment in Lenovo Group to
support its
widely reported purchase of IBM’s
personal
computer business, a deal
that came about strictly through personal
connections that led to the
chairman of Lenovo. “Be very, very
selective,” says
Carroll, who has
been ultra-aggressive in his
deals—overly so, according to some
investors—and has demanded,
since the Shenzhen bank debacle, that his
firm
maintain a
significant degree of control either through a board
seat or a
management position. He focuses on financial services
opportunities because the
industry is undergoing deregulation
and he
believes this will yield a plethora
of
opportunities.
| Among the private equity funds currently raising
capital are Hsu’s Hambrecht
& Quist Asia Pacific, as well as
Newbridge Capital, Walden International,
Crystal Capital, IGlobe
Partners, Diamond Tech Ventures and KLM Capital. | Most
private equity firms that targeted China during the
mid-1990s
were not
terribly successful. At the time, the only investment
channels were
joint ventures or state-owned enterprises. The
performance of
China
funds launched since the late 1990s, when
the Chinese government began to
allow private equity firms to buy
controlling stakes in
entrepreneur-led private
companies, has
improved. These newer funds are
earning approximately 10 to 20
percent annually, on average, though of
course their investors
are hoping for
the occasional blockbuster like
Semiconductor
International Manufacturing to
justify their assuming the
additional country risk when they can secure similar
or better
returns
closer to home.
Renminbi Roulette
Venturing into China through the stock
markets is on a
par with a weekend at the casinos in Monte
Carlo, but
not nearly as scenic.
Some attractive stocks exist
among those owned by
private parties (as opposed to
the
Chinese government, which owns many
of the country’s largest companies)
and
that have passed the regulatory
requirements to trade in
the West as American
Depository Receipts or
Global Depository
Receipts. (See “Taking Stocks,” below.)
Lenovo, an
interesting
specimen to overseas investors since its successful $1.75
billion bid for IBM’s PC unit last December, holds promise.
The
purchase has
been expensive for Lenovo, one of the largely
nongovernment-controlled mainland
companies listed on the Hong
Kong
Stock Exchange, and concern over it has
brought the share
price down
approximately 15 percent. But its stringent
cost-cutting measures may
pay off in the longer
term.
Shares of many
of the
companies recently
listed on the New York and London exchanges are
trading lower
than their initial prices, the companies and their
shareholders
apparent victims of pre-IPO hype by the investment banks
that
underwrote them,
as well as growing pressures on profit margins
caused by increasing competition
in China.
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