PE shows Interest in Agriculture
2009-03-04
Chinese private equity funds Jiuding Capital has announced that its recent three projects are all agriculture-related, expressing that it planned to raise other Renminbi funds this year.
Jiuding Capital Director and Executive President Lei CAI said in an exclusive interview by Finance’s reporter that the reason why Jiuding Capital invested in three agricultural projects is they have noticed the fast development of China’s rural community and economy, and will continue to increase the investments in medicine, consumer goods, etc.
“The new funds will be not too large in size,” said Lei CAI, “Chinese limited partner (LP) market is not mature. More times and money will be wasted while rising funds exceeding 1 billion yuan. By comparison, it’s more feasible to raise small and medium-sized funds.
Jiuding Capital’s three projects are all involved in agriculture, that is, Guangxi Tianyuan Biochemical Co., Ltd. invested in last December, Jiangsu Huifeng Agrochemical Co., Ltd. in last June and Qingdao Sanchuan Juice Co., Ltd. in last March.
Lei CAI thought these companies are not traditionally agricultural ones, but only agriculture-related. For example, Guangxi Tianyuan is a company specialized in producing pesticide pharmaceuticals regarded as crop drugs and mass-produced and highly industrialized end consumer products.
Based on his analysis, pure agriculture including farming, forestry, husbandry and fishing, is a high-risk industry constrained by many negative factors as so to be not suitable for PE investment.
“However, modern rural economy is similar like the urban economy in 1990s, requiring a wide range of services and end products,” he said, “The economy is under fast development in terms of socialization degree and farmer’s income level, requiring lots of products and services.”
Jiuding Capital acquired a 15% of stake of Huifeng by investing 70 million yuan and 20% of Tianyuan by investing 65 million yuan. In addition, it plans to increase its stake by the way of transfer.
According to Lei CAI, the PE (Price to Earning) Ratio of Tianyuan is within 6-7 times based on the performance in 2008 and a higher demand on the profit increase can be seen in the agreement.
Among Jiuding Capital’s investment portfolios, no project is successfully exited. Because the IPO on China’s A-share market is frozen after crisis, it has applied for the CSRC but the listing was postponed.
For Chinese stock market, I think IPO can be done only when the two sides reach an agreement on price. Our exit target is PE ratio is within 15~20-times. If it increases to 60-times, we think it as an extra bonus,” Lei CAI said.
Jiuding Capital owns five funds totaling over 2 billion yuan, aimed to invest in mature enterprises. The first and second funds have been invested and in the management stage. The third funds are invested and will complete soon.
Its fourth funds are set up jointly with the funds of Chengdu municipal government, totaling 300 million yuan, among which, 100 million yuan is from the subsidiary of Chengdu government. According to the agreement, 70% of the funds will be used in Chengdu and neighboring enterprises.