Venture Capitalists Seek
New Routes Into China
By DENIS MCMAHON
July 9, 2007
SHANGHAI -- With their traditional investment route into Chinese firms cut off by government measures to bolster the country's local stock exchanges, many foreign venture-capital firms are considering launching yuan-denominated funds with local rivals, despite some lingering regulatory uncertainty.
Chinese companies used to restructure into offshore holding companies that foreign firms would invest in and would allow them to list overseas. But changes in the approval process for offshore vehicles have effectively stopped that route, prompting venture capitalists to seek a way to directly invest in Chinese companies with minimal bureaucratic wrangling.
While Chinese regulations have long allowed yuan-denominated joint funds, only a handful had been created, with most of the venture-capital sector preferring to stick with the regulatory certainty of investing in dollars from offshore jurisdictions.
That could change. Since September, the Ministry of Commerce has been in charge of approving requests by Chinese firms to restructure into offshore vehicles. It has yet to allow any, industry insiders say, a reluctance widely seen as a way of keeping China's best firms from launching initial public offerings overseas.
The result is that venture capitalists, who by one estimate raised about $8 billion in the last two years for China-targeted funds, are giving the old rule a new look.
"The joint fund is an onshore Chinese entity...and an advantage of this is that you do not have to get foreign-investment approval. It's treated to a large extent as an investment by a domestic investor," said Steve Chu, a partner at SIG Capital Ltd.
The firm, along with the private-equity arm of Singapore's DBS Bank Ltd, teamed up with Shanghai Science & Technology Investment Corp., a local government-backed venture firm, to set up a $15 million joint yuan-denominated fund earlier this year.
For the Chinese partner, such a fund brings access to management expertise, financial savvy and international experience. The foreign investor gets potential access to deals that otherwise might not have been available.
Although the rules allow yuan-denominated capital gains to be repatriated after a holding is listed in China's market for yuan-denominated Class A shares, no foreign fund has yet attempted it.
"Theoretically speaking, it should be OK," said Roman Shaw, Shanghai chapter head of the China Venture Capital Association, an industry group. "But if you are a pioneer, things might not go so well [dealing with]...time uncertainty, new regulation risk, and approval risk."
Write to Denis McMahon at
denis.mcmahon@dowjones.com
主题: Venture Capitalists Seek New Routes Into China 
周一 七月 09, 2007 8:45 pm
