485 Companies under IPO Review, Jiuding Capital Ranks First

2012-02-08

Money.163.com news on Febuary 8th

The CSRC announced on Febuary 1st a list of 515 companies in total under IPO review. Except the 30 companies whose review has been suspended, the remaining 485 companies are in line for review. According to ChinaVenture’s statistics, in the 485 companies under review, the number of VC/PE-backed enterprises reaches 195, accounting for 40%, among which the investment institutions including Jiuding Capital, SCGC, Fortune Capital, Covtor Capital, and Oriental Fortune Capital and so on each invests in more than 8 companies, providing strong guarantee for their future returns of performance.

ChiNext is the Main Channel for Divestment by PEs, and Pre-IPO is still the Maim Stream

Febuary 1st saw the implementation of the new policy by the CSRC for IPO pre-disclosure, and meanwhile the CSRC announced a list of 515 companies under IPO review, in which, except the 30 companies for which review have been suspended (suspension of review is generally due to big law and/or operation issues of one company, and in actual operations most companies will not enter the final review stage), the remaining 485 companies are all at one of the three stages including “under preliminary review”, “during assessing feedback” and “pre-disclosure finished” in which 92 companies plan to be listed in Shanghai Stock Exchange, 203 companies to Shenzhen Stock Exchange SME Board and 190 companies to ChiNext Board. According to the statistics of the financial data product CVSource under ChinaVenture, among the 485 companies in line for review, 195 companies have been invested by VC/PEs, accounting for 40%. Considering part of investment information has not been disclosed, the participation rate of VC/PEs is expected to be higher than this percentage.

Seen from sectors distribution of the companies having VC/PE background for review, the number of companies planning to be listed in Shanghai Stock Exchange, Shenzhen Stock Exchange SME Board, and ChiNext Board are 39, 67, and 89, respectively. Seen from whether the absolute quantity or percentage in the total number of companies in the board, ChiNext Board is leading compared with the other two Boards, showing that ChiNext Board plays a leading role in the divestment channels of VC/PEs (see Fig. 1).

Fig. 1 A-share IPO Applications by VE/PE-backed Enterprises as of Feb. 2012

Seen from investment period, as Febuary 1st, 2012, the above 195 VC/PE-backed enterprises have an average investment period of 2.5 years after bringing in investments, which basically matches with the investment cycle of main Pre-IPO funds in current PE market, wherein, in total, 17 companies closed their newest round of financing within the past one year.

Jiuding Capital Investes in 19 Companies that are in Line for Review, and Foreign Institutes Enter A-share Market

According to the statistics of the financial data product CVSource under ChinaVenture, behind the 195 VC/PE-backed enterprises, 190 VC/PE investment institutions are expected to realize divestments from Chinese capital market within one year. The number of companies invested by one VC/PE to some extent determines the condition of returns of investments by the VC/PE in A-share market in the future.

Among the many institutes, the company that has the amplest “reserves” is Jiuding Capital with a total number of 19 companies under IPO review, the second is SCGC with a total number of 13 companies under IPO review, followed by Fortune Capital, Covtor Capital, and Oriental Fortune Capital with a total number of 9 companies, respectively. Seen overall, the number of investment institutions that have invested in more than three companies under IPO review reaches 27 (see Table 1). At present, Chinese VC/PEs are saying farewell to “excessive profit” times and entering a deep adjustment period, and law of survival of the fittest is more obvious, while the reserves of the above VC/PEs’ companies having the potential to be listed are expected to enable them to obtain consistent returns of investment and pass “the cold winter”.

 It is noteworthy that some conventional USD fund management institutes are also participating deeply in A-share market, e.g., the foreign investment institutions including Legend Capital, Sequoia Capital China, DT Capital Partners, CDH Investments, Intel Capital have multiple portfolio companies under IPO review. Although at present it cannot be determined in what currency the above institutes invested initially their funds, foreign institutes have frequently launched RMB funds within China in recent years, which undoubtedly brings greater possibilities for them to divest from China.

The Number of A-share IPO applications by companies invested by VC/PEs by Febuary 2012

Securities brokers’ direct investments are frequent, and “Sponsor+direct investor” mode is likely to gradually fade out

In the current companies with VC/PE backgrounds under IPO review, securities brokers’ direct investments are frequent and are expected to keep active in the divestment from A-share in 2012. According to the statistics of ChinaVenture, among the 194 VC/PE-backed enterprises under IPO review, 27 companies are funded by securities companies engaged in direct investment, related to 28 investment cases (Wahson Appliances were funded by Everbright Capital and GF Xinde Investment Management), with Goldstone having the largest number of 7 directly invested companies, followed by Guoson and GF Xinde Investment Management each having 5 directly invested companies under IPO review.

As can be seen from the divestments in the way of IPO by securities companies engaged in direct investment in the past several years, Guoson, Goldston, GF Xinde Investment Management and Pingan Bright Fortune are 4 of the most active divestment firms. According to the present IPO “reserves”, in the future the 4 institutes’ divestment activity rate will continue to keep ahead of other direct investment securities brokers. Besides, at present Guotai Junan Innovation Investment and CMS Zhiyuan each has two directly invested companies under IPO review, and Essence Capital and Everbright Capital each has ome such company. If the companies under review can pass the review and go public, the above institutes are expected to realize their first divestment in the way of IPO.

As can be seen from the sponsors of the directly invested companies by securities brokers, in 6 among the 28 investment cases, the sponsor and direct investment investor belong to different securities brokers, while in the 23 divestment cases by securities brokers in 2011 only one case is non-“sponsor+direct investor”, showing that the dependence by securities company direct investment on the investment banking resources of the parent company has decreased. The decrease of “sponsor+direct investor” mode in the current companies under IPO review may be due to the impact of Guidelines for Supervision of Direct Investment Business of Securities brokers, which was promulgated by CSRC in July 2011 and started to limit the “sponsor+direct investor” mode. In the future, whether it is limited by the policy or complies with the market demand, independent development of securities company direct investment is the unavoidable trend.