Hony Capital Said to Raise $2.7 Billion for Yuan-Dollar Fundby
Will be first dual-currency fund raised by large PE firm
Fund meant to resolve tension between dollar, yuan investors
Hony Capital Ltd., the Chinese private-equity firm that bought U.K. restaurant chain PizzaExpress Ltd. in 2014, raised $2.7 billion for a dual-currency fund intended to smooth the way for overseas and China-based investors to participate in the same deals, people familiar with the matter said.
Hony Capital has completed the fundraising, of which about 70 percent is in U.S. dollars and the rest in yuan, one of the people said, asking not to be identified discussing private information.
The dual-currency fund is a first among larger firms in China’s private-equity industry and is designed to resolve some of the long-standing tensions between participants in the firm’s separate yuan and dollar pools, the people said. Until now, Hony Capital and competitors such as Carlyle Group LP and Blackstone Group LP have offered separate funds to their offshore and onshore investors, sometimes leading to questions about how managers were allocating deals and resources.
“This type of pooled currency fund can be seen to have some appeal to certain types of investors,” said Keith Pogson, a senior partner for Asia-Pacific financial services at Ernst & Young LLP, citing “those who want a mixture of onshore and offshore deals, but for whatever reason are limited to how they contribute to a particular currency."
Pogson said the move was “particularly interesting in the current climate where the government in China has been far more sensitive to currency flows out of the country.”
Dollar-based investors have expressed concerns that they are shut out of the best China deals, while mainland investors, who have restricted access to foreign currency due to the country’s capital controls, are sometimes worried they lose out on the most attractive overseas transactions, the people said. The new dual-currency structure is intended to better align the interests of the two sides, they added.
Johnny Xing, a Beijing-based spokesman for Hony Capital, declined to comment.
As Chinese investors seek to channel more money overseas, their interest in gaining access to the best foreign deals has grown. Overseas mergers and acquisitions by Chinese companies are expected to triple this year and increase further in 2017, according to Roland Berger GmbH, a Munich-based consulting firm.
The dual-currency fund is expected to invest in both local and foreign companies involved in various sectors of the Chinese economy -- including consumer, health care, pharmaceuticals and industrial machinery firms, the people said.
For Hony Capital, founded in 2003 and backed by the conglomerate Legend Holdings Corp., the new fund would be the eighth it has raised. Five of its existing private-equity funds are in U.S. dollars and two are in yuan, with total assets of 48 billion yuan ($7.4 billion). It also has two yuan-denominated mezzanine funds.
Investors in Hony Capital funds include Goldman Sachs Group Inc., Singapore’s state-owned investment firm Temasek Holdings Pte., the Canada Pension Plan Investment Board, China Life Insurance Co. and China’s National Social Security Fund.
The firm has invested in close to 80 companies, including video website PPTV.com and industrial machinery manufacturer Zoomlion Heavy Industry Science and Technology Co., both Chinese firms. As well as its $1.5 billion acquisition of PizzaExpress in 2014, Hony Capital teamed up with U.S. buyout firm TPG Capital and two Hollywood producers to build a new movie studio the same year. It bought a stake in Compagnia Italiana Forme Acciaio SpA, an Italian machinery maker, in 2008.
In March, Hony Capital sold its stake in Santos Ltd., Australia’s third-largest oil and gas producer. The buyout firm pared its holding in China’s CSPC Pharmaceutical Group Ltd. last year.
Global private-equity firms have raised fewer yuan funds since China’s National Development Reform Commission issued a ruling in 2012 that overseas private equity firms don’t qualify for special status under rules meant to encourage foreign investment. Total yuan funds dropped to the equivalent of $11 billion last year, from $12.4 billion in 2014 and $18 billion in 2012, the year the ruling came into effect, according to the Asian Venture Capital Journal, a research firm.
China funds raised in dollars suffered an even larger drop, falling to $2.7 billion last year from $7.4 billion in 2014, a year in which a number of large private equity firms raised money as their previous funds reached the end of the investment cycle, the AVCJ said.