04/21/2010

CDH Contemplates Initial Public Offering

CDH Investments of Beijing is thinking about going public.

The move would make CDH the first private equity manager in China to trade on a public exchange. The firm would probably lean toward the Shanghai Stock Exchange, Shenzhen Stock Exchange or Hong Kong Stock Exchange, although Nasdaq is also a possibility. Apollo Management, Blackstone Group and Kohlberg Kravis Roberts all filed in New York, "but CDH is likely to get a much better valuation in China, where it is well known and well respected," one source said.

There's no word on how much CDH would seek to raise. The firm's possible plans in part reflect a sense that investors in China are becoming more comfortable with private equity products, along with growing demand among foreign backers.

Such an offering would also put cash in the pockets of CDH's owners: New York fund-of-funds manager Capital Z Investment, Singapore's state-owned GIC Special Investments and the shop's own management team. The CDH staff consists of eight professionals led by Stuart Schonberger, Wu Shangzhi and Jiao Zhen.

CDH is considered a pioneer in China's private equity market. The firm formed in 2002 as a spinoff from China International Capital, an investment-banking operation that's one-third owned by Morgan Stanley. It then set out on a rapid expansion characterized by widespread capital-raising campaigns - a process that might have given rise to its IPO plans.

CDH finished marketing its newest private equity fund earlier this year, collecting $1.4 billion under the banner of CDH China Fund 4 for growth-equity and buyout investments in China-based companies. While that was short of the firm's $2 billion equity target, the total was still considered an achievement given sluggish capital-raising conditions worldwide. Morgan Stanley was among the vehicle's backers, with a commitment of at least $100 million.

CDH also counts 3i Group, Washington State Board and the World Bank's International Finance Corp. among limited partners in its funds.

A less bullish take on CDH's possible stock offering is that such a maneuver would fit in with survival tactics that large private equity firms around the world are pursuing as investor demand for their vehicles wanes. "It is part of a general move on the part of the mega [private equity] firms to extend their life cycle, which would be in normal markets reduced by the fact that they systematically underperform other size segments in terms of cash-on-cash performance," one investment advisor said.