Chinese Buyout Shop Hony Plans $1.5B Fund

Chinese private equity firm Hony Capital plans to raise 10 billion yuan ($1.5 billion) for its second yuan-denominated fund, Reuters reported. The firm will invest across industries including pharmaceuticals, energy and financial services. Hony currently has more than 30 billion yuan under management, Reuters said.

(Reuters) – Hony Capital, one of China’s biggest buyout firms, plans to raise 10 billion yuan ($1.5 billion) in its second yuan-denominated fund that aims to foster globally competitive Chinese companies partly through overseas acquisitions, its chief executive officer said on Wednesday.

The private equity unit of Legend Holdings will invest mainly in six industries including pharmaceuticals, new energy and financial services, betting they would benefit from China’s shift towards consumption from manufacturing, Zhao Linghuan said at an investment conference in Shanghai.

“China’s economic restructuring has created huge opportunities for the private equity industry,” Zhao told reporters.

“Our key investment strategy is to help local companies grow global through acquisitions and industry consolidation,” he said, adding that half of the fund’s targets would be state-owned enterprises.

Hony, which also manages four U.S. dollar funds, competes with global buyout firms including Kohlberg Kravis Roberts (KKR) , Blackstone Group and the Carlyle Group [CYL.UL] in raising money to be invested in China, the world’s fastest-growing major economy.

Zhao, who is also vice president of Legend Holdings, parent of China’s biggest PC maker Lenovo, said that Hony knows Chinese companies better than foreign investors, and has access to more local resources.

Hony’s newly-launched yuan fund has secured 3 billion yuan of investment from China’s national pension fund, which also invested in Hony’s first yuan fund, launched in 2008.

Hony currently manages more than 30 billion yuan, including four dollar funds that count western banks such as Goldman Sachs as investors.

OVERSEAS ACQUISITIONS

Several Chinese companies, backed by Hony’s funding, are preparing for overseas acquisitions, as they aspire to become global players, Zhao said, declining to name them.

Hony has previously helped Chinese machinery maker Changsha Zoomlion Heavy Industry Science and Technology Development Co acquire European rival CIFA.

Hony’s strategy reflects a broader trend in which Chinese companies are stepping up overseas acquisitions in the aftermath of the global financial crisis.

Blackstone is in talks to join a bid by China’s Bright Food Group Co for U.S. healthcare products seller GNC Holdings Inc, a person familiar with the situation told Reuters on Wednesday.

That followed Chinese cable maker Xinmao Group’s planned $1.3 billion bid for Dutch company Draka Holding NV , and Geely Automobile Holdings’ purchase of Ford Motor’s Volvo unit earlier this year.

The six industries Hony will focus on also include construction, media and consumer goods, sectors that would benefit from China’s economic restructuring and urbanisation, Zhao said.

“China’s market is big enough for private equity investment,” he said, brushing aside the notion that the industry is too crowded and competitive. “The securitisation level of Chinese companies is still lower than normal. The only constraint is our management capability as funds grow.”

by Samuel Shen and Jacqueline Wong

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