Taipei-based China Development Industrial Bank (CDIB) is setting up its first cross-strait renminbi fund. This comes as its parent company, China Development Financial Holding Corporation (CDFH), becomes the first financial firm approved by the Taiwanese regulator to establish direct investment operations on the mainland.
The fund will be an early-stage private equity or late-stage venture capital fund targeting Taiwanese entrepreneurs in mainland China. Historically, it is Taiwanese families and corporates – rather than financial institutions – that have made investments in China in the form of foreign direct investment.
Established in 1959, CDFH is one of the longest standing merchant banking groups in Asia, with more than $12 billion in assets.
“We are the earliest established financial institution in Taiwan, with more than 50 years of direct investment experience,” says Victor Gao, managing director at CDIB Capital, the overseas investing arm of CDFH. “On the back of fast improving cross-strait relations, our existing platform has all the capabilities to invest in China.
“From the regulators’ perspective, they would like to make sure the first approval turns out to be successful,” he adds.
Gao believes CDFH has a much better chance of achieving that than other financial institutions in Taiwan. “We have been successfully investing in mainland China from overseas for quite a few years,” he says, “and are now in the process of starting our onshore operations.”
CDIB is in the process of launching a few RMB funds in different regions jointly with local institutions and governments in China.
The first fund was launched last month in Fujian, aiming to raise Rmb2 billion. With support from the provincial government, Rmb1 billion has been raised at the first stage from CDIB (40%), three flagship state-owned enterprises in Fujian province (55%) and Fujian Da Tong Venture Capital (5%).
CDIB aims to utilise the fund in Fujian as a platform to accelerate the integration and upgrading of industries both in Taiwan and China, combining the resources from both sides to develop emerging industries operating in the Greater China region.
The company is also working to set up another fund focusing on the Yangtze River Delta region and plans to launch more RMB funds with similar structure in North China and the West region.
Having joined the firm three months ago, Gao is primarily responsible for leading CDIB Capital’s investments in mainland China, leveraging on his 26 years’ experience at global private equity funds and Fortune 500 multinational companies.
In terms of investment strategy, CDIB Capital focuses on expansion-stage companies with a focus on four key sectors, namely: consumer; technology, media and telecommunications; financial services; and industrials.
“Our primary strategy is growth capital flow,” says Gao. “We select companies with proven business models that are cashflow positive. We take them to another development stage. The size of our equity investments ranges from $10 million to $50 million, with a sweet spot around $20 million.”
Lionel de Saint-Exupery, president and chief executive of CDIB Capital, says: “We are invested in approximately 285 companies across the region, with the bulk of them in Taiwan. Almost one-third of the companies listed on Taiwan Stock Exchange have been invested by CDFH.
“As a result, we are uniquely positioned to assist our portfolio companies in exploring cross-strait business opportunities,” adds Saint-Exupery. “For instance, several of a current target company’s major prospects are in Taiwan, and our parent company is a core shareholder of most of those. Naturally we can help them to penetrate and expand in the Taiwanese market.”