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OCBC launches US$100m fund in Shanghai
Publication Date : 09-01-2014
OCBC Bank launched a US$100 million fund in Shanghai on Wednesday that will invest directly in privately owned Chinese companies.
The fund will have more flexibility than similar ventures as OCBC has been granted a licence under the Qualified Foreign Limited Partner (QFLP) pilot programme run by the city authorities.
It will allow OCBC to convert up to US$100 million worth of foreign capital into yuan to invest directly in firms, reducing much of the red tape that would normally arise.
Without QFLP status, foreign investors wanting to provide funds to China-incorporated firms have to seek extensive regulatory approval for each foreign exchange transaction.
OCBC's private equity and special opportunities arm, Mezzanine Capital Unit, took about six months in 2008 to get the necessary approvals to invest in Shindoo Chemi-Industry.
Than Su Ee, the head of Mezzanine Capital Unit, told a briefing here last week that the process can be shortened to one or two months as the QFLP-approved foreign investor no longer needs clearance to convert foreign funds into yuan on a case-by-case basis.
He said the QFLP status helps level the playing field when competing against Chinese private equity fund managers, who do not have to go through the currency conversion and regulatory process.
"A lot of companies, when they go out to do fund-raising, obviously have projects on hand, they have acquisition targets that they want to acquire and they would need the money within a very short time-frame," he added.
"If you tell them that I need three to six months to secure the necessary approvals before I can write a cheque, not many companies are willing to entertain us."
OCBC, like others in the market, is paying more attention to companies in China as they are expected to seek listings on the mainland instead of going to bourses offshore.
"If the company aspires to be listed on the domestic stock exchange, in Shenzhen or Shanghai, then (there's) no choice, they have to use a China- incorporated company," Than said.
He reckons OCBC will invest in two onshore Chinese firms a year in agriculture, health care and clean and environmental technology, among other sectors.
It has invested in one onshore Chinese company so far, Shindoo, which has given it handsome rewards.
OCBC's 50 million yuan (US$8.2 million) investment increased about three-fold after the fertiliser manufacturer listed in Shenzhen in 2011.
The bulk of the bank's private equity investments in China will still be in offshore companies, as it is easier to invest foreign funds in such firms.
Mezzanine has been investing in private companies in China and Southeast Asia since its inception in 2003.
It has committed about S$300 million (US$235.8 million) in more than 25 Chinese firms in all, making up 30 per cent of the S$1 billion (US$786 million) total funds it has deployed.
China's status as an important market for OCBC is evident in the lender's bid to buy Hong Kong's Wing Hang Bank, which has about 70 branches in Hong Kong, Macau and China.
OCBC is the first Southeast Asian financial institution to set up a QFLP fund in Shanghai.
Other private equity institutions that have obtained the QFLP status include Carlyle Group and Blackstone Group.