Sunday, January 31, 2010
While I am in the mood, I would like to post my favorite article in the past week which is about the commercial endeavors of Wen Jiabao's son Wen Yunsong, who now runs a PE outfit called New Horizon Capital. It has big money behind it in the form of Temasek and Softbank. Due to his genius and a first-rate education from Northwestern University, the fund has landed several high profile deals already. Although he is flying high now, he may become a point of vulnerability for the Hu Jintao faction. With his son in such a high profile situation, Wen will be vulnerable to blackmail by the princelings, who are also engaged in their own private equity activities across China. I am not saying there is dirt, but the chance is that there is some dirt on Wen junior. So, in the run-up to the 18th Party Congress, I think Wen will, as usual, wait and see which way the wind blows and throw his weight behind the likely winner. Given his son's vulnerability and the princelings' ability to deliver sweet-heart deals, Wen may not be a reliable ally to Hu.
Exclusive: China PM's son eyes $1 billion fund for deals
Mon Jan 25, 2010 1:46am EST
*By George Chen, Asia Private Equity Correspondent
HONG KONG (Reuters) - New Horizon Capital, whose co-founders include the son of Chinese Premier Wen Jiabao, aims to raise a $1 billion private equity fund to invest in domestic industry leaders ready to make initial public share offerings.
This would be the third and largest private equity fund for New Horizon, which had about $500 million under management since it was established in 2007, according to sources with direct knowledge of the matter.
New Horizon Capital recently completed raising $600-$700 million for its latest fund by a first closing date, with capital commitments from Japan's Softbank Corp (9984.T) and Singapore state investor Temasek Holdings TEM.UL, the sources said.
It started pitching the fund as early as 2008, but found it tough going as a result of the financial crisis and suspended the fund until early 2009, the sources said.
"That was a very tough time, but now people are willing to pour money into the fund again since China is still the focus worldwide," said one of the sources.
Softbank, run by influential Japanese tycoon Masayoshi Son, and Temasek were long-time investors since the firm launched its first fund in 2007, the source added.
The sources declined to be identified because of the sensitive nature of Wen's family background. A representative for New Horizon Capital could not be immediately reached for comment.
BACK FROM THE U.S.
Wen Yunsong, also known as Winston Wen, helped form New Horizon Capital in 2005, a few years after graduating with an MBA from Kellogg School of Management at Northwestern University in the United States, according to the sources close to Wen.
Between graduation and the launch of New Horizon Capital, Wen started a telecoms equipment maker whose key clients included large banks and securities firms, according to Chinese and Hong Kong media reports. Wen later sold the company.
Beijing, which historically viewed private equity firms as speculators, is becoming more welcoming to foreign private equity funds that are boosting investment in China and creating jobs, which the government sees as key to maintaining social stability.
Despite Wen's background, New Horizon Capital is considered a foreign fund because of its legal structure and the foreign sources of its dollar capital.
New Horizon Capital's first fund was launched in 2007. Soon afterwards, Wen and his management team, which includes long-time friends from his U.S. days, made some quick investments in privately-held Chinese enterprises with potential to be market leaders.
"They have a very stable team ... They were schoolmates or old friends. They know each other very well," said another of the sources.
Private equity investment in China has a brief history, but New Horizon Capital has had some notable achievements.
It recently bought a large stake in Shenzhen-listed wind power producer Xinjiang Goldwind Science & Technology Co (002202.SZ), a leading wind power equipment maker in China. Goldwind is looking to raise $1.5 billion via a Hong Kong listing this year, Reuters reported last week.
Other New Horizon corporate investments, such as Yingli Green Energy (YGE.N) and Kingsoft (3888.HK), have already gone public.
New Horizon Capital is also an investor in Shineway Group, China's top meat processor, in a landmark buyout deal led by Goldman Sachs (GS.N) a few years ago.
It is also an investor in Jiangsu Rongsheng Heavy Industries Co, China's biggest privately-owned shipbuilder, along with Goldman Sachs and other funds. The company is seeking to list in Hong Kong, Reuters reported last year.
(Editing by Chris Lewis and Ian Geoghegan)
I came across your blog today when surfing the web. Lately I've been very puzzled by the issues in China. I am hoping maybe you can help shed some light. I know my questions are not related to the current blog entry.
1. Given China's growth rate is consistently higher than 8% a year, strategically, it seems very logical to stockpile on commodity when the price is relatively low. Why should China hold pieces of US treasury paper can be inflated away instead of holding commodities that it needs for it's growth? As such, how does one distinguish between speculation vs. strategic stockpiling? Granted some stockpiling is not centrally planned but that just proves that market and price works in China too right?
2. China's current housing bubble is very different in nature than the US sub-prime bubble. In China, there is no sub-prime mortgages.
- All first time home buyers must put down 20% down. For buyers of 2nd home and beyond, they must put down 40% payment.
- The average down payment for home purchase is 50%
- The Chinese are famous for their frugal ways (savings rate is nearly 40%).
- Rental price in China are dirt cheap relative home price.
Over leverage is primary cause of pain during an asset bubble. From data on Chinese home buyers, they are not the one's taking on excess leverage. Which economic players (the central gov, the local gov, the banks, the developers, and the home buyers) are taking on excessive leverage in China? More importantly, how/why is the excessive leverage taken on?
3. There is also a lot of concern of growing non-performing loans in China.
At what point is the ratio of none performing loan relative to GDP becomes a problem? How close is China to that danger? At least to me, the damage from a trillion RMB non performing loan doesn't seem that big when the economy is almost 5 trillion _dollars_.
Can the Chinese use it's 2 trillion foreign reserve to help directly or indirectly with the excess non-performing loan problem and how?