(Reuters) – New Enterprise Associates (NEA), a leading venture capital firm, said on Wednesday it will stick to its business plan in China despite scandals involving some overseas-listed Chinese companies as negative sentiment has been overblown.
NEA plans to list one of its China portfolio companies in the United States this year and will submit IPO applications for two other Chinese firms, as it keeps its pace of investing in three to four companies in the country every year, managing director Xiaodong Jiang said, declining to name the companies.
“Current sentiment is very negative towards Chinese companies … and those seeking an IPO next week or next month will be most impacted,” Jiang told reporters on the sidelines of a private equity conference in Hangzhou. “But such fears have been exaggerated and are expected to fade in a few months’ time. Most Chinese companies are trustworthy.”
Investor concern over the integrity of Chinese companies, triggered by a series of accounting scandals at firms such as Sino-Forest Corp and fuelled by negative research reports from short sellers such as Muddy Waters, have knocked down prices of overseas-listed Chinese companies and thwarted several IPO plans.
NEA, a shareholder in Muddy Waters target Spreadtrum Communication, is confident about the Chinese chip company’s integrity and its business prospects, Jiang said.
Spreadtrum’s shares plunged after Muddy Waters questioned the company’s accounting practices in a negative public letter, but has rebounded sharply following clarification by Spreadtrum’s management.
“Time will tell whether the water is muddy or clear,” Jiang said. “Practices by some companies are outrageous and irresponsible, and there could also be other untold purposes.”
Jiang said some overseas-listed Chinese companies were problematic, but added that many such firms were misled into foreign capital markets by some western investment banks in the immediate wake of the financial crisis when cash was badly needed.
NEA, which has $11 billion under management globally, has invested about a quarter of its money in emerging markets China and India and that proportion will rise over time, Jiang said.
Since entering China in 2003, NEA has invested about $400 million in a portfolio of more than 20 companies, including e-commerce business Redbaby.com.cn, mobile payment service provider Lianlian Pay and Novast Pharmaceuticals.
(By Samuel Shen and Jacqueline Wong)