Interesting article in this morning’s (16 June) FT Tilt by Sid Verma on whether Chinese investors are squeezing out private equity investors. He cites a global PE fund manager who reportedly told yesterday’s (15 June) Africa Forum 2011 conference organized by Private Equity International (www.peimedia.com): “Chinese investment in infrastructure projects in the construction phase have phased out” the development of local engineering platforms, the infrastructure-focused domestic institutional base and local managerial expertise.”
Verma looks at criticism of Chinese projects which are often criticized because they are funded with cheap Chinese loans provided the work goes to Chinese firms, and sometimes linked to resource extraction. He argues that in many cases Chinese investment is going into the early construction phase rather than operating infrastructure. Therefore where there is a completed infrastructure project that could generate revenues (port, toll road, etc.) there is often a new round where investors could get involved in the management. He writes: “It is feasible that a secondary market for such projects could develop in the coming years as Chinese investors unwind their exposures once they hit the operating stage; and/or seek to change the risk profile of an investment; and/or maximise income from operations through a capital market refinancing. These developments would surely provide a bounty of opportunities for foreign PE firms and banks.”
Usually if we think of Chinese private equity we think of dragon giant, China Africa Development Fund (www.cadfund.com). Verma and notes that Hony Capital (www.honycapital.com), a China-focused private equity investor with $4.4 bn of assets under management, which in January spent $110 mn to buy Interswitch, a Nigerian payment processing company.
The forum continues today.
Of course, better to read his article for yourself here.