Rebound in IPOs yields windfall for PE/VC investors

Initial public offering activity in China is up sharply this year, generating large gains for venture capital and private equity investors, ChinaVenture Group said on Tuesday.

There were 224 IPOs in the first 11 months that raised a total of 340.8 billion yuan ($55.4 billion), up 159 percent for the full-year figure in 2013, the group said in a report.

It said 174 venture capital and private equity firms cashed out in the IPOs, receiving 590.5 billion yuan, up 1,367.7 percent from the full-year total in 2013.

Their average rate of return from IPO exits was 8.6 times, almost triple the 2013 level.

Some notable transactions in terms of exit rates included VC firm Legend Capital's 343.5 from China Auto Rental, followed by China Renaissance K2 Ventures from Jumei International Holding Ltd of 315.7 and Softbank from Alibaba Group Holding Ltd of 271.2, according to the report.

"IPO resumptions provided an important exit channel for VC and PE firms, which waited for a long time," said Lyu Shuai, an analyst at ChinaVenture Group.

New offerings were suspended for more than a year to allow for reform of the IPO process.

Part of that ongoing reform is the establishment of a registration system for new share offerings, which would replace specific individual approvals by regulators. A draft plan for that system has been completed and was referred to the State Council (cabinet) in late November, the China Securities Regulatory Commission said on Nov 28.

Other findings of the report:

· The manufacturing sector was the most popular with 58 IPOs, followed by the information technology sector (22) and energy and mining (18).

· The IT sector raised the largest amount of money, benefiting from Alibaba Group Holding Ltd's IPO of more than $25 billion.

· The New York Stock Exchange helped Chinese companies raise 158.2 billion yuan in the first 11 months, the largest amount among bourses, followed by Hong Kong Exchanges and Clearing Ltd and the Shanghai Stock Exchange.

· Between the resumption of IPOs in January and Nov 28 this year, 104 companies went public in the A-share market and raised 59.1 billion yuan.

· The ChiNext board, the Nasdaq-style market, drew the largest number of IPOs at 45, followed by the Shanghai exchange with 34 and the small and medium enterprises board with 25.

· As of Nov 20, there were 630 domestic companies seeking listing approval. Of those, 29 had completed all reviews and been given green light by the China Securities Regulatory Commission.

· During the first 11 months, 14 Chinese companies went public in the US, raising the equivalent of 174.7 billion yuan, up 3,458.5 percent from 2013.

The report said that 92 Chinese mainland companies were listed in Hong Kong during the first 11 months. They raised 105.1 billion yuan, down 14.6 percent from 2013 level.

"As China resumed initial public offerings in January after a freeze lasting longer than a year, the Hong Kong market's popularity was not as high," said Lyu.

"In the short term, the Hong Kong market can continue to be a financing platform for Chinese mainland companies, but in the long term, the A-share market will play a more important role," said Lyu, adding that the performance of the Shanghai-Hong Kong Stock Connect on the first day proved this.

The Shanghai-Hong Kong Stock Connect was launched on Nov 17. The entire daily quota of 13 billion yuan for the purchase of Shanghai-listed A shares under the program was fully utilized within three hours. In contrast, only 17 percent of the 10.5 billion yuan daily quota for buying H shares was taken up.

"Chinese companies are going public in the US because many of them are not profitable, which means that they cannot meet the IPO requirements in the A-share market," said Lyu.

"When the rules are loosened, more technology companies can be listed in the A-share market."