SOE restructuring set to fuel China buyout market

Private markets manager Christoph Rubeli says the rise of Chinese buyouts is unmistakeable, with restructuring of state-owned enterprises expected to fuel the trend.
SOE restructuring set to fuel China buyout market

China's restructuring of state-owned enterprises (SOEs) is set to further accelerate the rise of buyouts in its private markets, according to an industry player.

However, the private markets manager said that China still lacked a functioning debt market which could support more buyout activity.

Christoph Rubeli, partner and co-chief executive of private markets manager Partners Group took up the role of co-head of investments at the start of this year. He travels between the company’s headquarters in Zug, Switzerland, and its Singapore office, and has also served as head of the private equity direct and primaries business units. AsianInvestor interviewed Rubeli in early summer.

Rubeli said that the shift towards a buyout model in China was a “very important trend”.

He commented: “The buyout side of the spectrum will greatly increase now as more state-owned enterprises are being restructured and more early-stage entrepreneurs are willing to pass down ownership to someone else.”

However, he cautioned that market changes needed to occur to support this potential growth: “China today is still missing an active debt market that can support buyout activity. A reasonable amount of leverage is not an unimportant source of returns. Operational added-value is still more important in private equity investments, but a functioning debt market will help to support the market’s development. So far the market has been focused on growth equity.”

The onshore debt market's development was boosted last month (July 14) when the People's Bank of China released a reform package easing foreign institutional investor access to that market. That package did away with quotas for institutional investers, central banks and sovereign wealth funds and expanded authorised investments to interest rate swaps, repo transactions and securities lending.

Turning to India, Rubeli welcomed the political and policy developments which were supporting economic growth and making a number of domestic companies increasingly attractive.

He said: “In India, the recent developments at the policy end and in the political arena are gratifying. There are a number of very attractive Indian companies. We have generated positive results in the education space, for example.”

Rubeli said Partners had invested in a global IT support/solutions provider in India, and had been actively looking at opportunities in health care and process outsourcing for financial services businesses.

He highlighted the importance of real estate allocations in India, with Partners having invested in multi-use residential, office and retail complexes.

Rubeli commented: “The advantage of having both [real estate and infrastructure] is that an asset such as a school or hospital may be half real estate and half operational.

“Having a team that can analyse the investment on a joint basis means we can come to a much better conclusion. It pays to have both teams within the same organisation.”

For the full interview with Christoph Rubeli, read AsianInvestor magazine's forthcoming September issue.

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