360° Coverage : For China's Private Equity, A Long And Painful Path To...

1 Updates

For China's Private Equity, A Long And Painful Path To Liquidity

May 8 2014, 5:22am CDT | by

A festive ring of the bell and a salvo of red and blue confetti mark the making of a newly minted public company, otherwise known as an IPO. An elaborate dinner party with free-flowing champagne and...

Filed under: news

 
 
 

16 weeks ago

For China's Private Equity, A Long And Painful Path To Liquidity

May 8 2014, 5:22am CDT | by

A festive ring of the bell and a salvo of red and blue confetti mark the making of a newly minted public company, otherwise known as an IPO. An elaborate dinner party with free-flowing champagne and cocktails usually ensues that same night.

If you are a private equity investor who has invested in the company years before, the day is certainly worthy of celebration. You are now positioned to exchange the company’s shares – now publicly traded on a stock exchange – for cash, in what the industry calls an “IPO exit.”

But, your luck would be drastically different if the IPO had been in Shanghai or Shenzhen, the two stock exchanges located in Mainland China. Not only because they have been among the worst performing markets in the world, but also because IPO exits in Mainland China present unique challenges that are unlike any other markets.

Morgan Stanley Private Equity Asia Gets Locked Up

On May 4, 2011, Chinese polyester filaments yarn maker Tongkun Group Co. Ltd., a company backed by Morgan Stanley Private Equity Asia (MSPEA), completed a US$503 million IPO on the Shanghai stock exchange. The IPO was priced at RMB27 per share, and the stock rose 10% to RMB29.71 on its debut.

A year earlier on March 15, 2010, MSPEA paid RMB4.9 per share to acquire 41.8 million shares of Tongkun, or 8.68% of the company, in a pre-IPO deal. On the day of the IPO, the American investment bank’s Asian private equity arm recorded a paper profit of close to RMB1 billion (US$624 million).

That would have been a great payday. But what happened afterward was nothing that the private equity investor had in mind.

The polyester filaments yarn sector, which provides material for clothing and industrial products such as tires and conveyor belts, was hammered by overcapacity and a hard-hit export economy in China. The price of polyester FDY 75D/36F, a type of twisted sewing thread, plummeted 42% to RMB10,100 per ton in March 2014 from RMB17,300 in March 2011.

Tongkun Group, as the largest polyester filaments manufacturer in China, saw its share price slide to RMB12 per share in March 2012, and then to RMB5.68 in early May. The sentiment toward the sector was so negative that for the previous twelve months, the company’s stock has been trading below its net asset value, which stood just under RMB7 per share.

By the time MSPEA’s three-year lock-up period since the day of its original investment on March 15, 2010, expired, Tongkun’s share price had plummeted 73% to RMB7.29.

If MSPEA were to sell its shares today, its profit would be a meager RMB32.6 million on an original investment of RMB204.8 million during a five-year period. That implies an internal rate of return of around 3.69%, before fees and other costs. That is certainly not the type of return investors expect from an emerging market like China./>/>

As of March 31, 2014, MSPEA still holds 8.68% of Tongkun Group. The Chinese polyester filaments yarn sector continues to be burdened by overcapacity. As China’s economy slows and restructures away from its export-led growth model, the sector’s outlook remains gloomy.

To continue reading, click here.

 
Update
1

20 hours ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double tragedi ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

13 die of Ebola in DRC
Kinshasa, Aug 29 (IANS) A total of 13 people, including five doctors, died of Ebola virus disease in the Democratic Republic of Congo (DRC), the country's Minister of Public Health Felix Kabange told Xinhua Friday.
 
 
How birds learnt to fly
New York, Aug 29 (IANS) Birds have an innate ability to maneuver in mid-air, a talent that could have helped their ancestors learn to fly rather than fall from a perch, says a study.
 
 
Millions of mites crawling on your face right now!
New York, Aug 29 (IANS) Are you aware that your face is brimming with living mites that feed on the oil our skin secretes and hide in tiny hair follicles? And no, they are not pooping on you as they store up all the excreta until they die!
 
 
New tool maps how drug abuse affects brain
Washington, Aug 29 (IANS) In a first, researchers have developed a laser-based imaging tool to map how drug abuse disrupts blood flow to the brain.
 
 
 

Latest from the Network

Russia to enhance nuke capability for own security: Putin
Moscow, Aug 29 (IANS/ITAR -TASS) Russia will continue building up its nuclear potential not for the purpose of intimidation but for ensuring its security, President Vladimir Putin said Friday. "We are strengthening...
Read more on Politics Balla
 
Political deadlock persists in Pakistan as army plays 'facilitator' (Roundup)
Islamabad, Aug 29 (IANS) The talks between the government and representatives of the Pakistan Tehreek-e-Insaf (PTI) and Pakistan Awami Tehreek (PAT) failed to break the political deadlock between the two sides Friday...
Read more on Politics Balla
 
Jason Segel lives with puppets
Jason Segel owns hundreds of puppets. The 34-year-old actor has a major obsession with collecting the moveable models and admits they have even started taking over his Los Angeles home. Speaking to The Guardian...
Read more on Celebrity Balla
 
Ariana Grande is 'happy' with love life
Ariana Grande is ''happy'' with her love life. The 21-year-old singer refused to reveal too much about her blossoming romance with Big Sean, 26, but she insists she's content with how it's progressing. Asked about her...
Read more on Celebrity Balla
 
Kelly Clarkson wants 'big family'
Kelly Clarkson wants a ''big family.'' The 32-year-old singer welcomed her first child, daughter, River Rose into the world with her music manager husband Brandon Blackstock in June and is already thinking about...
Read more on Celebrity Balla
 
Britney Spears' dad bought video of cheating boyfriend
Britney Spears' father has allegedly bought the video of her boyfriend cheating on her. Jamie Spears, who has controlled the singer's personal and professional affairs since her breakdown in 2008, reportedly forked out...
Read more on Celebrity Balla
 
Britain raises terror threat level
London, Aug 29 (IANS) British Home Secretary Theresa May Friday announced that Britain's Joint Terrorism Analysis Centre (JTAC) has changed the country's threat level from international terrorism from "substantial" to...
Read more on Politics Balla
 
Jason Segel: mum hated my nude scene
Jason Segel's mum hated his nude scene in 'Forgetting Sarah Marshall'. The 34-year-old actor has revealed that his mother failed to laugh when she first watched the scene where Jason gets naked in front of co-star...
Read more on Movie Balla
 
Filming resumes for Star Wars Episode VII
Filming for 'Star Wars Episode VII' has resumed following Harrison Ford's recovery from injury. The Hollywood icon suffered an accident on set earlier this month, which meant he had to undergo surgery on his leg and led...
Read more on Movie Balla
 
India seeks Kuwait's help over arrested Indians
New Delhi, Aug 29 (IANS) India has sought Kuwait's assistance over the arrest of some Indian nationals following a brawl in that Gulf nation. "I understand that there was a brawl with nationals of some other countries...
Read more on Politics Balla