Top news of the week
China attracts private equity
China's consumer sector has become a magnet of foreign investment, thanks to attractive growth prospects. A bulging middle-class, with plenty of cash and rising purchasing power, is busy snapping up a variety of products including cars to catch up on living standards.
This week, Chinese automaker Geely secured a $245 million investment by selling convertible bonds to a private equity fund under Goldman Sachs. Geely is a small player in China's rapidly growing market, with a 2% to 3% share. To put this in context, more than 6.2 million passenger cars have been sold in the first eight months of this year, and the full-year sales number will likely top 10 million for 2009. Geely's products are priced at the lower end to attract entry-level car buyers in China, but the recently announced bid to buy Swedish carmaker Volvo signalled its ambition to expand into the higher-end market as well.
In the same week, private equity firm Carlyle bought a 17.3% stake in privately held baby formula maker Yashili, gaining exposure to a huge market that has been growing at an annual rate of over 20% in recent years thanks to rising acceptance of the product in the market and the arrival of 16 million newborns in China each year. Dairy product makers suffered a major setback last year as a toxic milk scandal swept across China, but recovery is on the way after the government introduced tough quality control measures to restore consumer confidence.
Details of the investment are not available, but we can get some clues by looking at the size of similar deals that have recently been completed or are in the pipeline. In August, dairy company Feihe Dairy, raised $63 million by selling a 10.5% stake to venture capital firm Sequoia. Another Chinese baby formula maker, Ausnutria Dairy, is in the process of raising as much as $220 million in an upcoming initial public offering (IPO) in Hong Kong. The firm said it will use part of the proceeds to secure high-quality milk for its dairy products, and it is eyeing acquisition candidates in Australia.
Market recap
Liquidity dried up slightly this week in the stockmarket, as investors set aside as much as $100 billion in new share subscription for the 10 initial public offerings (IPOs) to debut on China's new growth-enterprise board. The Shanghai Composite Index fell 4.2% to 2,839, while the Shenzhen Composite Index fell 5.0% to 11,384.
Macro and industry updates
China Investment Corp buys mining stakes
China's $300 billion sovereign wealth fund, China Investment Corp (CIC), has invested $1.9 billion in debt issued by Indonesia's largest coal miner PT Bumi Resources.
The fund also bought a 14.5% stake in publicly listed Noble for $850 million, to gain more exposure to the global commodities market. Two months ago, CIC bought 17% of Canadian mining firm Teck Resources for $1.5 billion.
China Mobile tests new payment service
China Mobile plans to launch a new mobile payment service in mid-October, using SIM cards embedded with radio frequency identification (RFID) chipsets to facilitate mobile payment. Statistics from China's own credit card processing network Union Pay show that more than 19 million mobile subscribers have already signed up to use their mobile phones to pay phone and utility bills, as well as purchases of airfares and accommodation. Such transactions totalled CNY 17 billion in the first six month of 2009.
