Tech PE plan to lift returns of liquor firms

Plans recently put in place by a group of leading Chinese liquor makers, including the country's largest liquor producer Kweichow Moutai, to set up private equity investment funds — with a major focus on the tech sectors — reflect a cross-boundary trend of diversifying investments by traditional consumption giants in order to boost financial returns, experts said.

Kweichow Moutai said last week that it would set up two investment funds with a cumulative capital of more than 10 billion yuan ($1.4 billion). The new investments would focus on cutting-edge information technology sectors, such as biotechnology, new energy, new materials and high-end equipment, different from previous investments that mainly focused on the consumption industry.

The two funds, of 5.51 billion yuan each, will be co-operated with China Merchants Capital and Goldstone Investment, a PE arm of China Merchants Group and CITIC Securities.

Meanwhile, Sichuan-based Wuliangye Yibin Co Ltd and Jiangsu-based Jiangsu Yanghe Distillery Co Ltd have also jumped on the bandwagon of private equity investments, with semiconductor, medical care and new materials among major focus areas.

"It has been a trend recently for traditional companies to become limited partners and do CVC, or corporate venture capital, investment, which mainly refers to the investment of corporate funds directly in external firms," said Kong Xiaolong, founding partner of private equity service platform Fofweekly.

"As these companies have stable cash flow and investment returns in their own sectors, they tend to do cross-boundary investments in emerging sectors like tech, to diversify their financial returns," Kong said.

Moutai said in a statement that it would use its own funds and leverage professional investment institutions to increase the rate of return and create value for shareholders.

According to Moutai's financial report for fiscal year 2022, its cash and cash equivalents balance were more than 152 billion yuan as of last year. The company's stock has been one of the most valuable for investors in the country.

Xiao Bing, executive partner of investment firm Fortune Capital, said in a conference earlier this month that hard technology would become a top investment area for investors this year as China aims to boost its technological prowess.