Pulled pork IPO shows China private equity not yet ready for world stage

Sun May 18, 2014 1:14am EDT
 
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By Stephen Aldred

HONG KONG (Reuters) - China's biggest buyout firm, CDH Investments, is known as "The Blackstone of China" for its savvy deal making and spread of businesses, but last month's pulled IPO of pork producer WH Group Ltd is a setback to its global ambitions.

The deal thrust a spotlight on CDH, which first invested in WH Group in 2006, and exposed its limited experience in handling big IPO exits from its investments in a global financial center.

"If we believe Chinese private equity is going to rival the Carlyles and the Blackstones (BX.N: Quote), they need to clearly be able to demonstrate they can do deals - and successful deals," said Fraser Howie, co-author of "Red Capitalism".

"Not just a deal, but have a pattern of operating successfully in a number of different fields, and frankly, no Chinese company in any industry has shown its ability to do that yet," Howie added.

The original $5.3 billion IPO by WH Group would have been the biggest for a private equity backed company in Asia. Only Carlyle Group (CG.O: Quote) has completed a similar recent IPO in the region, with its $3.1 billion IPO for China Pacific Insurance Group (601601.SS: Quote).

GLOBAL ASPIRATIONS

CDH won kudos for engineering WH Group's $4.9 billion purchase of Smithfield Foods Inc SFII.UL, the largest acquisition of a U.S. company by a China firm, and Wu Shangzhi, its co-founder, a former World Bank banker and an elder statesman of China private equity, suggested China's economic power would lead to more such deals.

"The competitive advantage certainly now is pointing to a different direction. There is a compelling reason for the transaction, there are going to be more of these happening," Wu said in a speech in Hong Kong.   Continued...

 
Some of the products of WH Group are displayed in front of maps of China (L) and the United States at a news conference on the company's IPO in Hong Kong, in this April 14, 2014 file photo. REUTERS/Bobby Yip/Files