BoCom Plans $500 Million China PE Fund

HONG KONG (Reuters) – An investment arm of Bank of Communications (601328.SS)(3328.HK), China’s No.5 lender, said on Wednesday that it aims to raise $250 million to $500 million for a private equity fund focused investing in China.

The offshore fund, the first private equity fund for BOCOM International, would focus on China’s consumer industries, high-speed rail systems, healthcare, clean energy and infrastructure companies, said Simon Hua, head of private equity.

BoCom International also planned to set up an asset management firm in China to operate onshore funds this year. It could be either soley owned by BOCOM international or jointly owned with its parent, he said.

Shanghai-based BoCom is 20 percent owned by HSBC Holdings Plc (0005.HK)(HSBA.L).

The dollar fund would invest in companies with IPO potential and would be listed in Hong Kong in 12 to 24 months, Hua said.

He added: “We see a lot of state-owned entities restructuring; there are opportunities there. As a central government-owned bank in China, we are actually well positioned for that kind of restructuring.”

The first round of fundraising attracted HK$400 million ($51.5 million) of investments. The second round would close in May, Hua said.

About 10-20 percent of the fund’s money would come from its parent, BoCom. U.S. and European investors were expected to contribute about a third, with the balance from Asia, he said.

“The fund’s annualised IRR (internal return ratio) is 35 percent and the life of the fund is seven years, maybe plus another two years,” he said.

The investment bank has 280 employees with about 10 at its private equity team. It plans to expand its headcount by 30 to 40 percent in 2010.

Chinese investment banks have continued to grow despite the global financial crisis. In 2009, they accounted for about 18 percent of Hong Kong’s underwriting market and the share is expected to rise to 20-30 percent this year.

“Over the past few years, BoCom International has been building its financial business and customer base. From now on in the coming few years we will work on our direct investment and fund management business,” said Chief Executive Tan Yue Heng.

Private equity firms are racing to raise capital for new funds as the global economy recovers, in particular in Asia.

This week, Reuters reported that Affinity Equity Partners, an Asia-focused private equity firm founded by former top UBS (UBS.N)(UBSN.VX) bankers, planned to raise a multi-billion-dollar buyout fund in the second half. 

On Monday, CITIC Capital announced that it had raised $925 million for its second China buyout fund. ($1=HK$7.769)

By Clare Jim