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Asia-PacificDecember 1 2004

Small players take initiative in China

Insisting on majority control, it took Nestlé most of the 1980s to negotiate its first direct investment in China. At that time, even one of the world’s largest and best capitalised multinationals was nervous about doing such a deal.
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Fast forward to 2004 and today’s China trendsetters are not multinational investors at all but very agile venture capitalists, who feel confident enough to take 10% to 15% stakes in small and medium-size enterprises. Eventually, they are going to exit through listings on stock exchanges around the world.

Chinese companies are desperate for capital and, while the country’s vast savings pool is incapable of being channelled to fast-growing firms – due to lack of financial infrastructure – they will have to rely on foreign resources.

“There is a huge backlog of Chinese companies wishing to IPO in China and all listings have been suspended while they update the stock exchange rules,” says Simon Littlewood, chief executive of London Asia, a former dotcom incubator that was bought for its Aim listing (the second London board) and is now a vehicle for directly investing in China. “The Hong Kong and Singapore markets are also swamped with China listings and companies are now forced to go further afield.”

London Asia plans to bring a Chinese financial software company to the New York market as its first IPO and has another 14 investments to think about exit strategies for. Equity finance house SovGem, also Aim listed, is another rare player in this market. London Asia is also busy acting as a corporate finance adviser and is doing project finance deals. HSBC and Citigroup are probably not worried yet but London Asia’s strategy illustrates how smaller players can now find ways into China.

Brian Caplen

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