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The world's biggest private equity groups have been unable to sell or list their China-based portfolio companies this year, as Beijing clamps down on initial public offerings and a slowing economy leaves foreign capital stranded in the country.
Among the 10 largest in the world private equity groups with operations in China, there is no record that it has listed a Chinese company this year or sold its entire shares through an M&A deal, figures from Dealogic show.
It is the first year in at least a decade that this has happened, although the pace of exits has slowed since Beijing introduced restrictions on the ability of Chinese companies to list in 2021.
Buyout groups depend on the ability to sell or list companies, usually within three to five years of buying them, to make returns to pension funds, insurance companies and others who manage their money.
I difficulty in doing so it actually left that investor's money locked up, and future returns uncertain.
“There is a growing perception among PE investors that China may not be investing as systematically as expected,” said Brock Silvers, chief executive of Hong Kong private equity group Kaiyuan Capital.
He said firms face “weak exits on many fronts”. in Chinaincluding the impact of a sluggish economy and domestic regulatory pressures.
Many private equity groups have expanded their presence in the world's second-largest economy as it has grown rapidly over the past two decades. Global pension funds and others have invested heavily in the country, hoping to gain exposure to economic growth.
The 10 firms have invested 137 billion dollars in the past decade, but the total outflow of money to just 38 billion dollars, Dealogic data shows. New investment by these groups has fallen to $5 billion since early 2022.
The pace at which buying groups exit markets around the world has also slowed. It was down 26 percent in the first half of this year, according to S&P Global.
But stopping in China to get out is very rare. It helped that some pension funds that allocated cash to private groups were worried about exposure in 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 for a long time,” said a private markets expert at a large pension fund. not currently investing in this country.
A senior executive at a large investment group that lends money to private equity funds said they “don't expect a lot of exits in the next few years at least” from China.
The data includes Blackstone, KKR, CVC, TPG, Warburg Pincus, Carlyle Group, Bain Capital, EQT, Advent International and Apollo, 10 groups hundreds of purchases with money raised in private equity in the last ten years, except for those who did not make deals. in China. The data does not include Blackstone real estate deals.
Private equity firms sometimes buy or sell companies without reporting it, and any such exits may not be in the data. The firms declined to comment.
Difficulty in obtaining financing has been one of the main factors preventing international purchasing groups from investing in the country, in addition to Sino-US tensions and the economic slowdown.
Jean Salata, founder of Barings Private Equity Asia, which was bought by Stockholm-based EQT in 2022, told the Financial Times in June that another reason “The bar is high” for Chinese deals was that investors were asking: “How easy will it be to get cash on this investment five years from now?”
Foreign buyout groups used to rely on taking Chinese companies public in the US or other countries to exit their investments after a few years. But Beijing has introduced new restrictions on offshore listings since cracking down on ride-hailing app DiDi, following its New York IPO in 2021.
Overall this year, there were just 7bn domestic IPOs in China as of late November, compared to 46bn last year, which was the lowest total since 2019.
The split has left buyout groups looking for other options, such as selling their shares to local and international companies and other buyout groups. But overseas buyers are sometimes hesitant, partly because of political scrutiny in the country.
One of the few recent exits among the 10 firms came when Carlyle sold its minority stake McDonald's Chinese operations returned to the US fast food chain last year.
In China's boom years before the Covid-19 pandemic, there were many exits from both listings and mergers and acquisitions, and foreign private equity played a major role in driving the country's work.
Goldman Sachs chief executive David Solomon said at a conference in Hong Kong in November that one of the reasons why investors “mainly on the side” about sending money to China was that “it was very difficult . . . to get capital”.