Having “Big Men” to Set up the Stage, Jiuding Capital to Launch another Two Sector Funds
2011-10-21
Under the background that the competition in the PE industry is more furious, the route of launching sector funds has gradually become the main trend, especially in fields with higher specialization. At present, Jiuding Capital announced a plan of raising another two new funds which will cover mining sector and consumption sector, respectively, with a target scale of exceeding 1 billion yuan, respectively.
Investment opportunities in the mining sector is not discovered just now, for the adulation in the secondary market once drove mining enterprises to set off a huge wave of backdoor listings. However, compared with each of other hot sectors, mining investment does not reach such a furious competition stage that often dozens of PEs grab for the same enterprise. For its high professional extent and strong policy dependence, Jiuding Capital takes a fancy to this untapped ground.
It is worthy being noticed that this is another big move by Jiuding Capital after operating its first sector fund. These two funds, same as the previous pharmaceutical sector fund, will be operated separately, and a separate team will be built, respectively.
Logic behind mining sector investment
It is said that the consumption sector fund is under offering and planned to be closed this November. The mining sector fund is planned to be closed in the early of next year. Each target scale is exceeding 1 billion yuan, with the scale of the mining sector fund being expected larger.
Consumption industry has long been an apple in the eyes of PE firms, while mining industry still has a large ground to be cultivated. Jiuding Capital partner Lei CAI holds that economic development raises the price of assets in the resources sector, mining enterprises themselves have a very nice cash flow, and value of mining investment is big. “Before mining enterprise had good revenues, and did not accept capitals from PEs at all. However, as the state tightens regulations in the resources industry, mining enterprises have a very strong desire to expand their scales and operate by complying with regulations. During the development process of mining enterprises, although enjoying a sufficient cash flow, more and more entrepreneurs have realized the importance of capital and improvement of management. This is also the prerequisite that we invest in mining enterprises at an appropriate time.”
Different from PE investment in other industries, mining industry has a higher professional rate, stronger policy-sensitivity, and larger investment amount. General PEs do not have such an ability, and even some large institutes shrink back due to lacking of professional teams Currently, China PEs that have a professional team to be responsible for investment in this industry is still very few, and only several institutes including NewMargin Ventures, CSC and so on have a relatively large investment.
Jiuding Capital Mining sector fund has as its investment target those mining enterprises having a certain scale and potential to be listed. The operation of the mining sector fund will be led by Lu Guangfeng, who once worked in Ministry of Land and Resources for nearly 20 years.
“They have a daily increasing willingness to enter capital market, but they still have a long way to go in the aspects of policy understanding, regulations-complying-with operation, and capital operation, which is Jiuding Capital’s opportunity. Besides, lots of integration works in the industry needs to be done, so that scale effects can be realized, which also needs PEs’ professional acquisition ability”, Lu Guangfeng claimed. After joining in Jiuding Capital after one year, Lu Guangfeng has built a mining investment team comprising a dozen of full-time staff. Besides, an external resource team of more than 150 experts have been built.
It is reported that China now is the larges importer of iron ore in the world, with a dependence rate of iron ore import reaching around 63%. According to the statistics published by General Administration of Customs, the accumulated amount of iron ore import from January to September 2011 is 510,000,000 tons, up 11.1% over last year. This year the big price increase of iron ore has caused China’s iron and steel industry to pay a more cost of about 16 billion US dollars. However, the demand for iron ore is still on the increase.
Sector Fund Mode
Sector fund mode is gradually becoming a more common operation of Jiuding Capital. In the end of 2009, Jiuding Capital initiated China’s first private pharmaceutical sector fund, as a move to experiment the operation mode of sector funds. The first pharmaceutical sector fund has a scale of 500 million yuan, and this fund was completed investment very fast, and then phase II of the fund was raised and is under drawdowns. The pharmaceutical sector fund provides very good practices for Jiuding Capital’ sector fund operation thought, and as now Jiuding Capital has invested in nearly 20 projects in the pharmaceutical industry, including Qili Pharmaceutical, Liuzhou Pharmaceutical, Zhuhai Ebang, Erkang Pharmaceutical and so on, wherein Erkang Pharmaceutical has been listed in SME Board this September. After two years of exploration, mining sector and consumption sector funds have become Jiuding Capital’s modes for formally promoting sector funds at a large scale.
Lei CAI said that the mode of sector funds can better embody PEs’ competitiveness in project discovery, value-added service, etc.. “Sector funds are a magic weapon for our competition. When others are focusing on general funds, we have started to focus on sector funds; and when others only focus on one sector fund, we have focused on three sector funds.”
The purpose of Jiuding Capital’s route of sector funds can be seen from its operation of the consumption sector fund. Compared with mining industry and pharmaceutical industry, consumption industry has a relatively lower entry threshold and its competition is very furious. The purpose of establishing this fund is to integrate the value-added service ability in consumption field to form a core resource for acquiring projects. “Similar to mining sector fund, excellent industry talent needs to be sought for to build a professional team for the consumption sector fund, e.g., we have recruited some channel operation teams from P&D and Unilever who understand brands and channels. Such resource reserve and value-added service abilities is more competitive than pure money-providing funds”, Lei CAI claimed. Consumption sector fund currently is responsible by Lei CAI, who is also one of the core members of Jiuding Capital investment committee.
The trend of PE funds development towards sector mode is recognized by many experts in the field, and lots of institutes have experimented on this before, e.g., CDH launched a real estate fund, and Fortune Capital also established the first cultural industry fund last year. Some institutes conduct their investments in a certain segmentation sector, e.g., Tsing Capital has always been focusing on clear energy field, with Sunway Optronics and CSUN, etc. as its representative cases, and Vivo Ventures, who invested in Kanghui Medical, has always been investing in health& medicaltreatment industry.
Experts in the industry hold that sector fund mode forms a mode of “industry resources+ PE platform”: industry resources are usually realized by seeking for core teams having strong resources in the industry, while operation is under the PE firm’s uniform platform; and the former is mainly in charge of project development, while the latter is responsible for financing and management, and the core team solves the issue of incentives by enjoying a certain share of profit. For example, Jiuding Pharmaceutical sector fund integrates the resources of Bo YU team while Mining sector fund aims at the resources of Lu Guangfeng team, forming a mode of industry “big men” heading plus Jiuding platform.
Before joining in Jiuding Capital in 2009, Bo YU worked as GM of www.emedchina.cn under Searainbow Holding Corp., and the website established by him had an annual turnover of as high as 280 billion yuan. He possesses ample industry resources. Even many PE peers praised him to this reporter for his influences in this industry.
Lu Guangfeng, after graduation in 1983, was employed in the contemporary Policy Research Office, Ministry of Geology, i.e., the present Department of Policy and Regulations, Ministry of Land and Resources. Besides possessing strong administration resources, he is also very proficient in regulations as he participated in the compilation of many regulations of Ministry of Land and Resources. The joining of industry senior “big men” undoubtedly addresses to a great extent the issue of projects seeking. Similar to Bo YU’s joining in Jiuding Capital and launching the pharmaceutical sector fund, Lu Guangfeng had led to complete an assessment test of the industry before establishing the sector fund. He discloses that the number of large mining enterprises with a certain scale in China exceeds 6,000, and he has investigated over 100 of them, and Jiuding Capital has a resource reserve of nearly 3,000 projects.