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 VC系列： 红鲱鱼VC in Asia系列: Exit strategy in a “no exit” land (转贴) |
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安普若
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头衔: 海归元勋
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加入时间: 2004/02/21
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作者：安普若 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
VC in Asia: Exit strategy in a “no exit” land
With all that money pouring into China, the question is, How can you get it out?
May 27, 2004
China is prominent in the travel schedules, and, increasingly, in the portfolios of many U.S.-based venture capitalists these days. With foreign money flowing into China – which still is a Communist country, after all – exit strategies sit front and center for VCs who need to see a return on their investments.
Basic barriers such as an inconvertible currency (China’s capital accounts are inconvertible) and laws restricting foreign ownership of Chinese assets, among other factors, contribute to an investment landscape in which the exit is less than straightforward.
Historically, foreigner investors exiting a Chinese deal had only a couple of convoluted, if well-traveled, options – all of which danced around the fact that foreigners could not simply buy and sell shares in a Chinese company as they might in Singapore or Hong Kong.
Traditionally, the rules governing foreign investment in Chinese companies were Byzantine at best: typically mandatory joint venture partnerships with minority stakes.
In addition, Chinese laws limit or ban outright foreign ownership in many sectors considered sensitive, for instance, Internet-related companies and travel services (recall that it was not that long ago that ordinary Chinese were not permitted to travel abroad). Thus, foreign ownership usually involves structures such as joint ventures (in which the percentage of foreign-to-Chinese ownership is usually dictated by law), offshore holding companies (typically the Cayman Islands or British Virgin Islands, the only foreign jurisdictions allowed to list on the Hong Kong Exchange), Hong Kong-based companies operating on the mainland, or more recently, legalized vehicles like Wholly Foreign Owned Enterprises (which makes for a mouthful of an acronym, WFOEs).
“The main problem with doing VC-style investments in China was there was no recognized structure that was different from any other kind of foreign investment,” says Tony Stewart, a lawyer with Jones Day. “Most Chinese enterprises were not organized as corporations with shares you could buy. You could buy an equity interest, but then you wouldn’t have anything to sell later on.”
As China began in the 1990s to restructure its economy away from traditional state-owned heavy industries and its economy took off, its capital needs have grown exponentially. But foreign investors (even those thinking long-term, let alone VCs with a fixed investment horizon, typically 10 years or less) weren’t interested in putting money in without a solid way to get it back out.
In 1995, the Chinese government passed a law that created companies limited by shares or joint stock. But these did not permit the complicated capital structures typically seen in a VC portfolio, such as preferred shares with disproportionate voting rights. In many cases, foreign investors created joint venture companies, either peeling off a business from an existing enterprise or funding a new business out of a university. “These would typically use the foreign investor enterprise model, which were designed for long-term investments like factories and wouldn’t need a legal structure to accommodate selling them off in the short term,” say Mr. Stewart. “So it didn’t fit to use that structure for VCs either.”
Trade embargos
Meanwhile, China’s own capital markets are still quite immature: trading on the exchanges in Shenzhen and Shanghai only began in December 1990. Until a couple of years ago, privately owned companies could not list on the Chinese exchanges. On the other hand, when Chinese companies first began listing abroad, in the early 1990s, only state-owned enterprises were allowed to seek overseas listings.
As China shifts gradually away from a state-controlled toward a market-style economy, its appetite for foreign capital grows unabated. While they are loath to surrender control over key sectors, “The Chinese are more willing to surrender assets to [foreign] ownership than in the past,” says Kenneth DeWoskin of PricewaterhouseCoopers. “They also realize they can’t engage the private equity and VC funds unless they provide an exit.”
This is still a work-in-progress however. A law published in March last year to encourage the establishment of joint-venture VC funds has apparently been less than successful; few such funds have been set up. For one, it is extremely complicated and maintains a dual structure in which offshore funds are still kept offshore. Thus, foreign investors tend to stick with what they know: typically, offshore vehicles or WFOEs. Offshore IPOs, the preferred exit strategy of foreign VC firms in China, are most often in Hong Kong or Nasdaq, although more recently Singapore has made a concerted push to attract Chinese companies to list there. Of the 15 Chinese IPOs last year, 10 were by foreign VCs. By contrast, domestic Chinese VCs opted for trades sales as their preferred exit route. (The difference between a trade sale and M&A is defined by zero2ipo, a venture capital market research firm in Beijing, by the payment form: trade sales are largely cash deals; M&As are mostly stock deals.)
The VC track record
Howard Chao, an attorney with O’Melveny Myers, sees a bifurcation between foreign and domestic investors in China, and their long-term strategies. Like others who have been doing China deals for some time, he sees a clear China boom. From one point of view, however, Mr. Chao says that is a positive thing. “The more people that want to get into the market, makes it easier [for others] to get out,” he told an Asia Society conference on venture capital investing in China last month.
According to the Hong Kong-based Asian Venture Capital Journal, China attracted $1.57 billion in foreign private equity in 2003 – compared with just $350 million in 2002. David Chow, general partner with Pacific Venture Partners, says a total $2.3 billion in foreign and domestic venture funding was invested in China prior to 2001; that amount was almost doubled ($1.9 billion) in just three years, from 2001 through 2003. Nearly $1 billion of that was just in 2003, and Mr. Chow expects the VC investment total to be roughly the same this year.
On the exit end of the deals, the VC track record is less clear-cut. According to data from zero2ipo, in 2002 there were 34 foreign and domestic VC firms active in Chinese investments, with a total 58 exits that raised nearly $106 million. In 2003 that rose slightly to 37 active VCs (15 of them foreign), and a total 76 exits valued at nearly $218 million. Of the 76 exits, 37 were trade sales, 15 were IPOs, and six were merger-and-acquisition deals, the latter all by the foreign VCs. The remainder were either liquidations, or a mix of cash, stock, and dividend payouts, or unknown. (Zero2ipo itself is illustrative of the young, yet rapidly ramping-up VC scene in China. Launched in 1999 by Qinghua University graduate Gavin Ni and others, it now boasts 40 professionals and breathlessly promotes the venture industry in China).
Many Chinese companies – both state-owned enterprises like China Life, as well as venture-backed companies like Ctrip, both of which went public on Nasdaq last year to great fanfare – look abroad these days when seeking to raise capital. Most, however, stay closer to home. Some 271 Chinese companies are listed in Hong Kong, more than any other foreign exchange, making the former British colony effectively the center for Chinese listed companies. The reasons for that are obvious, says Lawrence Fok, deputy chief operating officer of the Hong Kong Exchange. “Hong Kong is a very liquid market. $100 billion has been raised on the Hong Kong exchange.” It’s a two-way street, Mr. Fok points out: Mainland companies are a source of growth for Hong Kong, representing nine of 10 IPOs last year.
Compared to the U.S., the market capitalization of a Hong Kong-listed company is typically much smaller, perhaps five to seven percent of those listed on the New York Stock Exchange, he notes. That said, Hong Kong-listed IPOs last year raised $8 billion, plus another $20 billion in secondary fund raisings. Hong Kong also claims cultural and language proximity to China over the U.S., not to mention nearly two dozen daily flights to Shanghai, a mere two hours away.
Nasdaq’s clout
That said, for most tech companies Nasdaq remains the Golden Goose. Richard Kramlich, co-founder and general partner of Silicon Valley VC firm New Enterprise Associates, views the current enthusiasm over Chinese IPO prospects in the U.S. with the jaded eye of an insider. NEA was reluctant to put money into China until recently, because it didn’t believe that the market was mature enough. However, once convinced the timing was right, it entered full throttle, putting $90 million into SMIC – its first China investment. Alas, SMIC’s public debut was something of a disappointment, closing 11 percent below its offering price on its first day and remaining underwater ever since (see “China Syndrome Hits Wall Street, Again” and “IPO Watch: Chinese Lesson”).
Mr. Kramlich sees signs of “market fatigue” with Chinese IPOs. Add to that worries about the Chinese economy overheating, and it tends to translate, in the short term, to worries about a China bubble (Mr. Kramlich prefers to call it a “bubblette”) and general apprehension over Chinese securities.
Exiting on Nasdaq appears to be a less-than-sure bet for Chinese companies, given the poor performance of recent IPOs of Chinese companies: Linktone, Tom Online, and most recently, online gaming company Shanda Interactive, as well as SMIC, are all trading well below their IPO price.
Rather than give in to such fears, Mr. Kramlich asserts, investors “ignore China at your peril. If you don’t invest even one dollar, you still need to be well informed.”
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VC in Asia is an online column focusing on the rising influence of venture capital in Asia, and its role in the region’s growing economy. Have thoughts or suggestions for VC in Asia? Email the column editor at [email protected].
For more information on the column, see VC in Asia.
https://www.redherring.com/article.aspx?a=10630&hed=VC+in+Asia%3a+Exit+strategy+in+a+%e2%80%9cno+exit%e2%80%9d+land
https://www.redherring.com/article.aspx?a=10630&hed=VC+in+Asia%3a+Exit+strategy+in+a+%e2%80%9cno+exit%e2%80%9d+land
作者：安普若 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 VC系列： 红鲱鱼VC in Asia系列: Exit strategy in a “no exit” land (转贴) -- 安普若 - (10665 Byte) 2004-5-29 周六, 08:42 (2187 reads)
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