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The world’s largest private equity groups have been unable to sell or list their China-based portfolio companies this year, as Beijing’s crackdown on initial public offerings and a slowing economy drain capital from foreign investors. trapped in the country.
Among the 10 largest in the world private equity Groups with operations in China, there is no record of any having listed a Chinese company on the stock exchange this year or completely sold their stake through an M&A deal, Dealogic figures show.
It is the first year in at least a decade that this has happened, although the pace of exits has been slow since Beijing introduced restrictions on the ability of Chinese companies to go public in 2021.
Buyout groups depend on being able to sell or list companies, usually within three to five years after buying them, to generate returns for the pension funds, insurance companies and others whose money they manage.
He difficulties to do it In fact, they have left those investors’ funds stranded, with future returns uncertain.
“There is a growing sense among PE investors that China may not be as systemically investable as previously thought,” said Brock Silvers, chief executive of Hong Kong private equity group Kaiyuan Capital.
He said companies were facing “weakened exit strategies on multiple fronts” in Porcelainincluding being affected by a slower economy and domestic regulatory pressure.
Many private equity groups expanded their presence in the world’s second-largest economy as it grew rapidly over the past two decades. Global pension funds and others poured capital into the country, hoping to gain exposure to its economic boom.
The 10 companies invested $137 billion over the past decade, but total outflows amount to just $38 billion, Dealogic data shows. New investments by those groups have plummeted to just $5 billion since the beginning of 2022.
The pace of deal exits from global buyout groups has also slowed. It was down 26 percent in the first half of this year, according to a report from S&P Global.
But the paralysis of departures from China is particularly marked. It has helped make some pension funds that allocate cash to private equity groups more cautious about exposure to the country.
“In theory, you could buy it cheap now (in China), but you have to ask yourself what would happen if you can’t get out or if you have to hold on to it for longer,” said a private markets specialist at a large pension fund that is currently does not invest in the country.
A senior executive at a major investment group that commits money to private equity funds said they “didn’t expect many exits for at least the next two years” in China.
The data covers Blackstone, KKR, CVC, TPG, Warburg Pincus, Carlyle Group, Bain Capital, EQT, Advent International and Apollo, the 10 largest buyout groups by funds raised for private equity over the past decade, excluding those that have not closed agreements. in China. The data does not include Blackstone real estate transactions.
Private equity firms sometimes buy or sell companies without disclosing it, and those exits may not show up in the data. The companies declined to comment.
The difficulty in withdrawing money has been one of the main factors deterring international buyout groups from making investments in the country, in addition to tensions between China and the United States and the economic slowdown.
Jean Salata, founder of Barings Private Equity Asia, which Stockholm-based EQT bought in 2022, told the Financial Times in June that one of the reasons why “The bar is high” for agreements with China It was that investors were asking, “How easy will it be to get liquidity for those investments five years from now?”
Foreign acquisition groups often resorted to IPOs of Chinese companies in the United States or other countries to exit their investments after a few years. But Beijing has introduced new restrictions on overseas listings since it cracked down on ride-hailing app DiDi following its initial public offering in New York in 2021. Listings have slowed significantly since then.
In total this year, there have been just $7 billion in domestic IPOs in China through the end of November, compared to $46 billion last year, which was already the lowest total since 2019.
The crackdown has left takeover groups looking for other options, such as selling their stakes to national and multinational companies and other takeover groups. But foreign buyers are sometimes reluctant, in part because of the greater political scrutiny the United States exerts on the continent.
One of the few recent exits among the 10 companies came when Carlyle sold its minority stake in McDonald’s Chinese operations again to the American fast food retailer last year.
In China’s boom years before the Covid-19 pandemic, there were dozens of exits through stock listings, mergers and acquisitions, with foreign private capital playing a much larger role in driving mainland activity.
Goldman Sachs CEO David Solomon said at a conference in Hong Kong in November that one of the reasons investors were “predominantly on the margins” about the deployment of funds in China was that “it has been very difficult”. . . to raise capital.”
