Jiuding Capital Has Biggest “Reserve” of Portfolio Companies in Line for IPO

2012-06-20

CSRC announced the latest basic information of the companies applying for IPO, and as of June 14th, in total 704 companies are in line for IPO, among which 111 have passed the review by the Public Offering Review Committee while the remaining 593 are still in line for review. According to ChinaVenture’s statistics, in the 704 companies under review, the number of VC/PE-backed enterprises reaches 287, accounting for 40.8%, among which the investment institutions including Jiuding Capital, Fortune Capital, SCGC, Goldstone, Legend Capital, Oriental Fortune Capital and so on are leading in number of portfolio companies.

Besides, securities companies’ direct investment is in the peak of divestments. In total 36 enterprises once obtained funds from securities companies engaged in direct investment, accounting for 13.3% of the entire enterprises having VC/PE backgrounds in line for review. CMS Zhiyuan Capital, Essence Capital, Galaxy Capital, Guotai Junan Innovation Investment, Changjiang Growth Capital, Industrial Innovation Capital are expected to realize their first divestment in the way of IPO.

Nearly half enterprises have VC/PE backgrounds; and ChiNext Board is the main channel for divestments by PEs

According to the statistics of the financial data product CVSource under ChinaVenture, among the 704 companies in line for review announced by CSRC, 287 companies have been invested by VC/PEs, accounting for 40.8% of all the companies in line for review. Considering information of the enterprises under preliminary review has not been fully disclosed, the actual number of VC/PE-backed enterprises is expected to be close to 50%.

Seen from sectors distribution, the number of companies in line for application to be listed in Shanghai Stock Exchange, Shenzhen Stock Exchange SME Board and ChiNext Board are 114, 281 and 309, respectively, wherein the number of VC/PE-backed enterprises is 49, 105 and 133, respectively (see Fig. 1). Whether seen from the number of companies in line for review or the percentage of VC/PE-backed enterprises, ChiNext Board is leading compared with the other two Boards, and ChiNext Board will still act as the main channel for divestments in the way of IPO by VC/PEs. While considering the current situation that China concept stocks continue freezing in the overseas capital market, in the future ChiNext Board will be more attractive to investment institutions.

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

Seen from the review status of the companies, 111 companies have passed the review by the Public Offering Review Committee, and each of the remaining 593 companies is at one of the four stages including “under preliminary review”, “during assessing feedback”, “pre-disclosure” and “suspension of review”. About the companies in the “review completed” stage, their IPO application procedure of this round is basically finished, thus their number is not included in the above statistics.

24 institutes have an IPO reserve exceeding 4 portfolio companies; and overseas RMB funds come to fruition

According to the statistics of the financial data product CVSource under ChinaVenture, behind the 287 VC/PE-backed enterprises are a total number of 299 VC/PEs that are expected to realize divestments by the way of IPO in A-share stock market, wherein 24 VC/PE firms have invested in more than 4 companies in line for review (see Table 1). Among the many institutes, the company that has the largest “reserve” is Jiuding Capital with a total number of 21 companies under IPO review, the second is Fortune Capital with a total number of 18 companies under IPO review, followed by SCGC with a total number of 14 companies, Oriental Fortune Capital CGC with a total number of 9 companies, and Legend Capital, Goldstone and Cowin Capital with a total number of 8 companies, respectively.

A-share IPO Applications by VC/PE-invested Enterprises as of June 2012

Table 1  A-share IPO Applications by VC/PE-invested Enterprises as of June 2012

In recent years, some conventional USD fund management institutes, such as CDH, Hony Capital, Sequoia Capital China, Legend Capital, DT Capital Partners, are seeking to realize divestments in the way of A-share by launching RMB funds in China, and recently the investment returns of their RMB funds are gradually emerging. In the companies in line for review, Sequoia Capital China behind Sinnet and MGRASS Drought-Resistance, Legend Capital and Hony Capital behind Yunnan Hongxiang Yixintang, DT Capital Partners behind Porton Pharmaceutical and Shanghai LaiYiFen, and CDH behind Ciming Checkup all hold shares through the RMB funds under them.

About investment cycle, ChinaVenture calculated it from the initial investment date by one institute to the date Jun4 14, 2012, and the calculated average investment cycle is 32 months. In the above VC/PEs investing in over 4 companies, the number of VC/PEs with a less than 20 months (included) investment cycle is only 2, namely, CCB International and Oriental Fortune Capital CGC, and CCB International has the shortest average investment cycle 18 months; the number of firms with a more than 40 months investment cycles is 5, including CDH, New Margin Ventures, Sino-Swiss, Haitong-Fortis Private Equity and Legend Capital, and CDH has the longest average investment cycle 52 months. The average investment cycle of the remaining 17 firms is distributed in the range of 20-40 months.

Securities companies’ direct investment meets peak of IPO divestments, with Goldstone and Guoson Hongsheng continuing to be active

Among the current companies with VC/PE backgrounds under IPO review, securities companies engaged in direct investment frequently appear. According to the statistics of ChinaVenture, among the 287 VC/PE-backed enterprises under IPO review, 36 companies are funded by securities companies engaged in direct investment, related to 38 investment cases (wherein Huaibei Mining and Fortune Trend each has been funded by two securities companies engaged in direct investment ) and related to 14 securities companies engaged in direct investment. Goldstone has the largest number of 8 directly invested companies, followed by Guoson Hongsheng and CMS Zhiyuan having 7 and 4 directly invested companies under IPO review, respectively, and GF Xinde and Guoyuan Investment each having 3 directly invested companies under IPO review.

Seen from the divestments of the securities companies engaged in direct investment by IPOs from 2009 to May 2012, Goldstone, Guoson Hongsheng, GF Xinde and Pingan Bright Fortune were the most active 4 institutes in divestments. According to the current IPO “reserves”, these four institutes are expected to continue keeping leading in activity of divestments. Besides, the direct investment subsidiaries such as Guotai Junan Innovation Investment, Industrial Innovation Capital, Essence Capital, Galaxy Capital, Changjiang Capital, DZ RONGTONG, etc. each has portfolio companies in line for review, and if the portfolio companies can go public successfully, these institutes each is expected to realize its first divestment by IPO.

Seen from the sponsorship and underwriting businesses of their parent companies of the above securities companies engaged in direct investment, for the above 704 companies in line for review, Guoson Securities is the most active in acting as the role of sponsor, with a number of sponsored companies in line for review reaching 54, followed by China Merchant Securities and GF Securities with a number of 47 and 45 companies, respectively. Haitong Securities and China Securities both have a number of sponsored companies reaching more than 30, while CITIC Securities, which has the largest number of invested companies in line for review by its direct investment firms, only have 27 sponsored companies in line for review.

The Companies under IPO Review Directly-invested by Securities Companies as of June 2012

Table 2 The Companies under IPO Review Directly-invested by Securities Companies as of June 2012