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

2 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

 
 
 

23 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
2

7 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the workforce of 20,000 by 30 per ce ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

7 weeks 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 ...
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

Budapest: the 'startup' capital of Eastern Europe
Budapest, Oct 21 (IANS/EFE) Barack Obama, the Dalai Lama and NASA all have one thing in common - the fact that they distributed live videos on Ustream, the app of the Hungarian startup that represents Budapest's potential to become a technology hotspot of Europe's eastern region.
 
 
Developing countries participate in half of world trade
Geneva, Oct 21 (IANS/EFE) The participation of developing countries in world trade accounts for nearly half of global trade, according to a report by the World Trade Organisation (WTO).
 
 
India showcases IPL as driver of economic development
United Nations, Oct 21 (IANS) The success of the Indian Premier League (IPL) in cricket embodies the emergence of sports as a global industry that promotes economic development and job creation in developing countries, India told the UN General Assembly (UNGA) Monday.
 
 
Cuba dispatches two new medical brigades to Africa
Havana, Oct 21 (IANS/EFE) Cuban President Raul Castro has announced that two health brigades from the island will be dispatched to Liberia and Guinea Conakry this week to collaborate in the fight against the Ebola virus disease epidemic.
 
 
 

Latest from the Network

1,074 new dengue cases in Chinese province
Beijing, Oct 18 (IANS) China's Guangdong province has reported 1,047 new cases of dengue fever, health authorities said Saturday. Six people have already died in Guangdong -- five in Guangzhou and one in adjacent...
Read more on Business Balla
 
Blake Lively 'always' wanted to be mum
Blake Lively has ''always'' wanted to be a mother. The 27-year-old actress is expecting her first child with husband Ryan Reynolds and she admits she's been dreaming of this moment since she was a youngster. Speaking...
Read more on Celebrity Balla
 
Kris Jenner 'torn apart' by Bruce's new relationship
Kris Jenner feels ''torn apart and angry'' that Bruce Jenner is dating her former assistant. The 58-year-old matriarch split from the 64-year-old Olympic gold medalist last October following 22-years of marriage but is...
Read more on Celebrity Balla
 
Cheryl Fernandez-Versini won't move to France
Cheryl Fernandez-Versini doesn't want to move to her husband's home country of France. The 'X Factor' judge, 31, who comes from Newcastle, is adamant she won't be relocating any time soon to suit her new spouse Jean-...
Read more on Celebrity Balla
 
Lance Bass sets wedding date
Lance Bass has set a date for his wedding. The former *NSYNC singer and his partner Michael Turchin, who have been dating for two-and-a-half years, are to tie the knot on December 20, 2014, a representative for the...
Read more on Celebrity Balla
 
Nepal avalanche toll reaches 39
Kathmandu, Oct 18 (IANS) At least 39 climbers died while hiking on a key Nepali route after it was hit by a major snowstorm and avalanches earlier this week, BBC reported Saturday citing officials. Over 350 stranded...
Read more on Politics Balla
 
Jake Gyllenhaal says society is complicit in 'nightcrawling'
Jake Gyllenhaal says almost everybody in society ought to relate to his new movie 'Nightcrawlers'. The eagerly-awaited film concerns those people who monitor police scanners and then race to crime scenes to film eye-...
Read more on Movie Balla
 
India eves look for first win in AFC U-16 qualifiers
Dhaka, Oct 18 (IANS) India will hope to register their first win of the 2015 Asian Football Confederation (AFC) Under-16 Women's Championship qualifiers when they take on hosts Bangladesh in a crucial encounter at the...
Read more on Sport Balla
 
Moyes mulling return to management
London, Oct 18 (IANS) Former Manchester United manager David Moyes said that he is ready to revive his managerial career six months after being sacked by the 'Red Devils'. "I am ready to return. I have enjoyed the...
Read more on Sport Balla
 
Ebola fears loom over Ghana hosting AFCON
Accra (Ghana), Oct 18 (IANS) The Ghana Medical Association (GMA) cautioned the government Saturday against hosting the 2015 African Cup of Nations (AFCON), despite a request by the Confederation of African Football (...
Read more on Sport Balla