Foreign Investors Favor RMB Funds

A report issued in December 2009 proved that the foreign venture capital & private equity (VC/PE) investors favor the pure Renminbi (RMB) funds in China.

On December 21, 2009, China Venture Capital Association officially published the 2009 Report on Foreign Capital’s Participating in RMB Funds. According to the report, in 2009 the foreign VC/PE was bullish on the pure RMB funds and the enterprises at the starting period. In addition, the second board IPO became the first choice for foreign VC/PE institutions’ plan of withdrawing.

RMB Funds: the Best Choice

The report showed that in the end of 2009 the foreign VC/PE institutions actively participated in the RMB funds. 41% of the foreign VC/PE institutions which have not set up RMB funds have already listed this project into their agenda; 22.7% of them were setting up the RMB Funds; 18.3% had formed detailed plans to set up the funds and they would be carried out soon. In addition, 17.6% of the foreign VC/PE institutions which have set up RMB funds were planning to found another one.

When asked, 91.2% of the foreign VC/PE institutions believed that the rise of RMB funds was an unchangeable trend and participating in the RMB funds was a kind of preparation for the long-term development in China. 89.3% of the foreign VC/PE institutions were encouraged by the prospect for withdrawal. Furthermore, the foreign VC/PE institutions were bullish on the RMB funds with the hope of cooperating with the government to gain more resources and conveniences.

The research proved that the foreign VC/PE institutions prefer setting up the RMB funds which were completely invested by local limited partner, which is also called the pure RMB funds. 64% of the foreign VC/PE institutions having planned to set up RMB funds said they would choose pure RMB funds while the other 36% would prefer the joint venture RMB funds. Thus, 47.2% of the foreign VC/PE institutions thought the RMB funds invested by the local limited partner and managed by foreign gross partner as the best model for RMB funds.

Problems on Local Partnership

Most of the foreign VC/PE institutions believed that the biggest hurdle for the foreign capital to join in the RMB funds was the unconsummated related policies.

Meanwhile, these foreign VC/PE institutions thought that the market environment for the foreign capital to join in the RMB funds was not satisfactory enough, which was reflected in the immature local market for limited partnership in China. The research revealed that 70.3% of the foreign VC/PE institutions considered the lack of qualified institutional local partner and the behindhand understanding of local partnership as the main problems haunting China.

Another truth revealed by the research was that most of the foreign VC/PE institutions hoped to raise capital for RMB funds from the national social security funds or insurance companies. In addition, local social security funds, local governments’ guiding funds and commercial banks were also good choices for the foreigners to raise capital.

More Importance Attached to Startup Enterprises

According to the research, the foreign VC/PE institutions used their RMB funds to invest into several industries. The Top five were the industries of environmental protection and new energy, consumption and service, medicine and health, Internet as well as education and training.

Moreover, 86.7% of the foreign VC/PE institutions considered the enterprises at the growing period as their best objectivesto be invested into. 73.3% of them also liked the enterprises at expansion period while 54.3% of them would never miss the chance of investing into the promising startup enterprises.

The enterprises at growing and expansion period were always the most attractive for foreign VC/PE institutions’ investments. An apparent change from the past was that more importance was attached to the startup enterprises. This was mainly attributed to the fact that the venture capital funds were now playing the main role in RMB funds of the foreign VC/PE institutions. In addition, it proved that the foreign VC/PE institutions wanted more from the RMB funds.

Second Board IPO: Best Choice for Withdrawal

The last thing the research told us was that the foreign VC/PE institutions considered the IPO and stock transfer as the best way of withdrawal. All the foreign VC/PE institutions taking part in the research said that IPO was the first method of their RMB funds’ withdrawal. This reflected the truth that these institutions were bullish on the prospect of IPO in China. 71.4% of them would also consider stock transition as a method of withdrawing.

Among all the IPO patterns, the most popular one for foreign VC/PE institutions was the one through second board, which was followed by small- and medium-sized enterprises board and main board. 92.2% of the foreign VC/PE institutions would choose the second board as the main method of their RMB funds’ withdrawal.