Overseas yuan gets nod in mainland PE market (3)

Tougher regulations

The mainland PE market experienced a slowdown in 2012 compared to 2011 due to the economic slowdown of the Western and mainland economies. The slump of the mainland domestic share market in 2012 also curtailed mainland PE activities as PE firms cannot obtain a higher valuation when they exit their PE investments via IPOs.

Tougher regulation by the mainland financial regulatory bodies regarding IPOs and the lack of investor interest for mainland companies listing on exchanges in other markets also dented the mainland PE activities in this year.

According to Ernst &Young data, the number of PE deals targeting mainland companies from January to October 2012 amounted to 296 with a total value of $7.7 billion, representing a decline in both volume and total value of about 45 percent each from the same period in 2011.

The PwC data revealed that in the nine months of 2012, there were around 360 PE deals recorded on the mainland, compared to more than 800 PE deals in the whole of 2011.

Amid the unfavorable market trend, the local accountant advisory firms reckoned that the mainland PE industry is still in good fundamental shape.

"PwC is optimistic toward the mainland PE market starting in the second quarter in 2013 due to the confluence of the three factors: the demand for capital in the country's private sector, the excess of investment capital earmarked for China which is held by the PE community and pressure to spend that capital; and a pipeline of PE exits, many of which will come to market by way of mergers and acquisitions, as well as the more traditional IPO route (on the mainland)" PwC's Brown said.

"We predict the market momentum of the mainland PE market will revive and expect the value and the number of PE deals will soar 20 percent in 2013 compared to 2012," Ernst & Young's Partridge noted.