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The world's largest private equity groups have been unable to sell or list their China-based investment firms this year, as Beijing's crackdown on initial public offerings and a slowing economy have left foreign investors' capital stranded in the country.
Among the top 10 globally Private equity Through groups with operations in China, there is no record of any Chinese company listing this year or selling its entire stake through an M&A deal, figures from Dealogic show.
This is the first year in at least a decade that this has happened, although the pace of exits has been slow since Beijing imposed restrictions on Chinese companies' ability to list in 2021.
Buyout groups rely on the ability to sell or list companies, usually within three to five years of buying them, in order to generate returns for pension funds, insurance companies and other companies whose funds they manage.
the Difficulties in doing so These investors' funds have in effect been left locked up, with uncertainty about future returns.
“There is a growing feeling among private equity investors that China may not be as systematically investable as previously thought,” said Brooke Silvers, chief executive of Hong Kong private equity group Kaiyuan Capital.
He said companies face “weak exit strategies on multiple fronts.” Chinaincluding the impact of the economic slowdown and local regulatory pressures.
Several private equity groups have expanded their presence in the world's second-largest economy where it has grown rapidly over the past two decades. Global pension funds and others have poured capital into the country, hoping to capture its economic prosperity.
Dealogic data showed that the ten companies invested $137 billion over the past decade, but the total exits amounted to only $38 billion. New investments by these groups have collapsed to just $5 billion since the beginning of 2022.
The pace of buyout groups exiting deals has also slowed globally. It fell by 26 percent in the first half of this year, according to a report from Standard & Poor's Global.
But China's exit stall is particularly stark. That has helped make some pension funds that allocate cash to private equity groups more wary of exposure to the country.
“In theory, you can buy cheap (in China) now, but you have to ask what happens if you can't get out or if you have to hold it longer,” said a private markets specialist at a large pension fund. Do not currently invest in the country.
A senior executive at a major investment group that has committed cash to private equity funds said they “don't expect a lot of exits over the next two years at least” in China.
The data covers Blackstone, KKR, CVC, TPG, Warburg Pincus, Carlyle Group, Bain Capital, EQT, Advent International and Apollo, the 10 largest buyout groups in terms of money raised for private equity over the past decade, excluding those that have not closed any deals. In China. The data does not include Blackstone real estate deals.
Private equity firms sometimes buy or sell companies without disclosing them, and any such exits may be missing from the data. The companies declined to comment.
The difficulty of disbursing funds was one of the main factors preventing international buyout groups from making investments in the country, in addition to Sino-US tensions and the economic slowdown.
Jan Salata, founder of Barings Private Equity Asia, which was acquired by Stockholm-based EQT in 2022, told the Financial Times in June that one of the reasons… “The level is high” for Chinese deals The point was that investors were asking, “How easy will it be to get cash from those investments five years from now?”
Foreign buyout groups used to rely on Chinese companies going public in the United States or other countries in order to exit their investments after a few years. But Beijing has imposed new restrictions on overseas listings since cracking down on ride-hailing app DiDi, following its New York IPO in 2021. Listings have slowed dramatically since then.
In total this year, there have been only $7 billion of domestic IPOs in China as of late November, compared to $46 billion last year, already the lowest total since 2019.
This campaign has left buyout groups looking for other options, such as selling their stakes to local and multinational companies and other buyout groups. But foreign buyers are sometimes hesitant, partly because of US political scrutiny on the mainland.
One of the last few exits among the 10 companies came when Carlyle sold its minority stake in McDonald's Chinese operations Return to fast food retailers in the United States last year.
In China's boom years before the Covid-19 pandemic, there were dozens of exits through listings, mergers and acquisitions, and foreign private equity played a much larger role in driving activity on the mainland.
David Solomon, CEO of Goldman Sachs, said at a conference in Hong Kong last November that one of the reasons…Mostly on the margins“About deploying money in China it was very difficult…to get the capital out.”
