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Spring Capital CEO sees opportunity in crisis

By Hui Ching-hoo (China Daily)
Updated: 2009-02-23 08:00

Mainland-focused private equity firm Spring Capital Asia remains optimistic despite the industry's poor record since the financial crisis.

Now is the best time for buying, according to CEO Vincent Chan.

Chan has been in the industry almost 20 years and has seen many ups and downs. The current financial turmoil is just a cyclical correction, he said.

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"This correction is normal, like the stock market collapse during the Asian financial crisis and the SARS epidemic in 2003," he said.

But many private equity firms joined the market after 2003. The newcomers invested aggressively because they had never experienced a recession, he said.

Investors sunk a record $686 billion into private equity globally in 2007, up a third from 2006 and more than twice the total invested in 2005 but the financial crisis hit the fast-growing private equity industry last year.

Chan estimates the deteriorating credit market in second half of last year forced a third of private equity funds to close down.

But the grim outlook doesn't bother Chan.

"I think the worst is over," he said.

The Chinese mainland has plentiful reserves so foreign private equity can ride the country's coffers and robust domestic consumption, he said.

But a growing number of non-performing loans will make many mainland lenders loath to deal with privately owned companies, so businesses may start looking at private equity as a way to help raise funds, he added.

Chan founded Spring Capital at the end of 2007. The $103 million-sized fund finished its first deal on Jan 30, acquiring the majority stake in Shanghai Insuring Polymer Materials, an energy-saving company.

"It was pretty lucky that I did not rush to secure my first deal in the first half last year. Shrinking asset values make now the best time for buying," he said.

He said he hopes the fund will close three to five deals by the end of this year, with each investment about $5 million to $12 million.

The fund will focus on healthcare, clean technology, consumer brands, professional and business services, advanced manufacturing, education and agribusiness, he said.

Foreign private equity activity remains brisk on the mainland despite the global economic downturn.

Budget hotel Warburg Pincus and Actis, for example, spent $65 million increasing its stake in 7 Days Inn Group last year, according to Asia Private Equity Review.