| Q4 2009 |
中文版 |  |
The European and U.S. IPO market managed to recover in 2009, albeit slowly, from the worst it had suffered in recent history. The US market recorded 63 IPOs for the year, raising a total US$25 billion. Most of the activity took place in the fourth quarter, with 32 IPOs and US$17 billion raised. The European market experienced a similar trend: 151 IPOs (61 in the fourth quarter) and €6.8 billion raised for the year. The strength of the IPO market in 2010, however, will rely on evidence of greater consumer confidence and continued growth of the global economy.
IPO Activity (U.S.) |
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|
Q1 2009 |
Q2 2009 |
Q3 2009 |
Q4 2009 |
IPO Number |
2 |
12 |
17 |
32 |
Fund Raised (US$ Billion) |
0.7 |
1.6 |
5.5 |
17.2 |
Source: Hoover’s IPO Scorecard |
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IPO Activity (Europe) |
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|
Q1 2009 |
Q2 2009 |
Q3 2009 |
Q4 2009 |
IPO Number |
18 |
28 |
44 |
61 |
Fund Raised (Euro€ Billion) |
0.009 |
0.5 |
1.4 |
4.9 |
Source: PWC’s IPO Watch |
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Chinese enterprises represented a significant source of global IPOs in 2009. A total of 176 Chinese companies went public, in either domestic or overseas exchanges, 70 more than in 2008. There were 99 domestic IPOs (which raised a total of US$27.5 billion) and 77 overseas IPOs. Notably, 90 out of 99 domestic IPOs occurred on the Shenzhen Small and Medium-Sized Enterprises (SMEs) Board or the newly formed Shenzhen GEM Board (ChiNext). The average size of these offerings (US$83 million and US$115 million, respectively), especially compared to the US$2 billion average reached on the Shanghai Stock Exchange in 2009, certainly reinforces Shenzhen’s exchanges as the avenue of choice for SMEs and emerging companies in China. Overseas, 77 IPOs were completed across a number of exchanges (Hong Kong Main Board, NASDAQ, NYSE, Singapore Stock Exchange, KOSDAQ, Frankfurt Stock Exchange). In any event, the top choice for Chinese companies wishing to list abroad remains Hong Kong, where in 2009, 52 IPOs raised a total of US$24.8 billion, 91.5% of the total proceeds raised overseas.
IPO Activity (Chinese Firms) |
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|
2007 |
2008 |
2009 |
Domestic IPO Number |
124 |
76 |
99 |
Fund Raised (US$ Billion) |
65.1 |
14.9 |
27.5 |
Oversea IPO Number |
118 |
37 |
77 |
Fund Raised (US$ Billion) |
39.7 |
6.9 |
27.1 |
Source: Zero2IPO |
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In 2009, 124 China-focused funds successfully closed, raising a total of US$18.8 billion, 25% less than what achieved in 2008. Venture capital funds were the most popular type, with 91 funds closed, followed by Growth Capital and Buyout-type funds. Most importantly, for the first time, new RMB funds outnumbered and outperformed foreign currency funds: 105 RMB funds closed, raising US$12.3 billion, vs. 19 foreign currency funds, which raised a total of US$6.5 billion. New RMB fund regulations issued by Chinese central and local governments, as well as the re-opening of Shenzhen SME Board and the launch of GEM Board, undoubtedly provided, and will continue to provide, strong wind to back this trend.
As for the investment activity, 114 private equity investments successfully closed in 2009, down from 159 in the previous year. However, the total investment amounted to US$18.6 billion, a 75.8% increase compared to 2008. The manufacturing and energy industries continue to attract significant interest, with 30 and 13 deals closed, respectively. But in terms of investment amounts, the financial sector definitely took the first place, attracting investments of US$9.9 billion, 49% of the total, followed by retail chains and food & beverage sectors, with US$2.6 billion and US$1.3 billion, respectively. In terms of investment type and stage, growth capital remains at the top: 79 deals closed and US$14.7 billion of total investments.
PE Investments in China |
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|
2007 |
2008 |
2009 |
Number of Deals |
176 |
159 |
114 |
Funds Raised (US$ billion) |
12.9 |
10.6 |
18.6 |
Source: ChinaVenture |
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VC Investments in China |
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|
2007 |
2008 |
2009 |
Number of Deals |
415 |
535 |
428 |
Funds Raised (US$ billion) |
3.6 |
5.0 |
3.7 |
Source: ChinaVenture |
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Investors explored several channels of exit in 2009: a) 77 VC/PE backed firms completed their domestic or overseas IPOs, raising a total of US$15.6 billion, 3.6 times 2008 level; b) 47 IPOs took place in the newly-opened Shenzhen GEM Board; c) 42 VC/PE-backed enterprises exited through M&A transactions (up 68% from 2008). The Property right trading market, regional equity exchange platforms mainly for collective and stated-owned enterprises, is also emerging as an important alternative channel of exit. Statistics shows that in the Shanghai United Asset and Equity Exchange, VC/PE institutional investors completed 539 transactions, in the form of either acquisition or strategic sales, for a total amount of US$4.6 billion (or RMB31 billion).
While the total deal value and financing amounts for 2009 decreased from 2008, reverse merger activity in the last quarter, especially among Chinese companies, showed a promising uptick, which could bode well for the coming year.
60 deals were closed in the fourth quarter of 2009, a 40% increase from the previous quarter, and about 28% from the year-earlier quarter. The total value of these 60 transactions was about US$729 million, averaging US$17.8 million. This is significantly up from both the 43 deals closed in the third quarter (worth a total of US$512 million or US$23 million each) and the 47 deals closed in the fourth quarter of 2008 (worth US$969 million, or about US$46 million on average).
However, for all of 2009, the total number of closed reverse mergers decreased by more than 11% from 2008. The decrease in deal value from 2008 was even more drastic, however. Last year, 187 reverse mergers were valued at about US$1.7 billion, just a fraction of the nearly US$9 billion generated by 211 reverse mergers closed in 2008.
45 reverse mergers involving Chinese companies closed in 2009, down from 66 in 2008. The fourth quarter, however, showed some improvement, with 11 transactions more than in the previous quarter, and unchanged from the 17 closed a year earlier.
Reverse Mergers Market Statistics |
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|
Q4 2008 |
Q4 2009 |
2008 |
2009 |
Number of Deals |
47 |
60 |
211 |
187 |
Deal Value (US$ billion) |
1.0 |
0.7 |
9.0 |
1.7 |
Source: Reverse Merger Report |
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Chinese Reverse Mergers & APOs |
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|
2008 |
2009 |
Number of Reverse Mergers |
66 |
45 |
Number of APOs |
20 |
9 |
Fund Raised from APOs (US$ million) |
160.0 |
48.1 |
Source: Reverse Merger Report |
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Puda Coal, Inc. (PUDA), reported net revenue of US$56,106,000 for the three months ended September 30, 2009, up 16.9% from US$48.0 million in the second quarter of 2009. Excluding the US$3.4 million in non-cash expense related to the fair value loss of derivative securities, adjusted net income was US$2.8 million, up 52.4% from US$1.8 million in the second quarter of 2009. Since the company received final provincial government approval to consolidate 8 coal mines, Puda’s management is now focusing on refining its plan to develop those mines.
SORL Auto Parts Inc. (SORL), reported net sales of US$33,989,937 and net income of US$3,809,438 for the three months ended September 30, 2009, respectively. Compared with the same period of 2008, net income increased by 62.7%. SORL has entered into a joint venture agreement with MGR, a Hong Kong-based global auto parts distribution specialist firm. The new joint venture will be named SORL International Holding, Ltd. ("SIH"). SORL holds a 60% interest in the joint venture. SIH will be primarily devoted to expanding SORL's international sales network in Asia-Pacific and creating a larger footprint in Europe, the Middle East and Africa with a target to create a truly global distribution network. This joint venture will complement SORL’s current international sales centers in Australia, United Arab Emirates, India, and the United States.Foreign firms and individuals will be allowed to set up limited partnership firms in China from March 2010. At present, foreign-invested private equity funds can be structured as limited partnerships through complex offshore platforms, but are required to be structured as corporations or unincorporated entities, if investing onshore through RMB-denominated funds. In addition, only Chinese investors in onshore RMB funds can utilize the limited partnership structures (which offers tax advantages and caps liability). Under the new regulations, foreign investors would be permitted to set up limited partnerships in China by themselves or with local partners. Registration of these limited partnerships will take place at the local level and will not need approval from the Ministry of Commerce. In order to promote the role of Private Equity, local governments of Beijing, Shanghai and Tianjin issued rules on foreign-invested RMB funds earlier in 2009. These new rules offer more flexibility as to the form in which a PE fund can be established and greatly simplify establishment procedures, even though were limited to those three locations. Further developments are expected throughout the current year.