Carlyle 'optimistic' over restructuring of SOEs

Investments in China by leading global private equity firm The Carlyle Group hit a record high in 2013, and the restructuring of State-owned enterprises will be a focus for years to come, according to senior executives of the company.

"While some businesses are growing less optimistic in China because of the slowing growth of the economy, Carlyle Group is as optimistic about China as we have ever been," said Carlyle Managing Director David Marchick. "As proof of our confidence, we invested more than $1.1 billion in China in 2013, more than any year in our history."

Carlyle has invested in about 80 Chinese transactions totaling $5.2 billion since 1998. It now has more than 20 active investments in China, mostly in small and medium-sized enterprises.

"We are very encouraged by the results of the Communist Party's Third Plenary Session," said Marchick. "We would like to participate in the reform of SOEs."

In January, Carlyle sold its remaining stake in China Pacific Insurance (Group) Co Ltd in a deal valued at $793 million. The private equity firm began selling its stake in the insurer in late 2010, and it earned about $4 billion from stock sales during that time, five times the $800 million it had invested between 2005 and 2007 for a 17 percent stake in the Chinese firm, according to calculations by Thomson Reuters.

Carlyle also invested in another State-owned enterprise, Chongqing Polycomp International Corp, a maker of E-glass fiber, and helped it set up a manufacturing base in Brazil.

Marchick said Carlyle is very selective about the investments it pursues and mentioned three factors it pays attention to when investing in a State-owned enterprise.

"Does the company have competitive products or services? Does it have a strong management team or will it be open to strengthen the management team? And, is the company in our area of expertise?" said Marchick.

If a company is chosen, Carlyle will help it cultivate good managers, and improve merger-and-acquisition capabilities, financial management, overseas expansion and corporate governance, he said.

Xiang-Dong (X.D.) Yang, a managing director and co-head of the Asia buyout advisory team since 2001, said Carlyle feels good about China's growth in the long term and that now is a good time to invest in China.

"We pay attention to the economic reform, and the restructuring of State-owned enterprises is a very important issue," said Yang.

Yang said that investing in a State-owned enterprise is different from investing in a private one and that building an effective plan for incentive systems is necessary. Professional private equity investors, he said, should help the management teams become more market-oriented and learn to link their company's performance to incentives.

"Rather than being a controlling shareholder, Carlyle will be a minority shareholder of a State-owned enterprise and make a positive influence on its development," said Yang.

Other than in a few sectors of State monopolies and defense, SOEs are expected to be more market-oriented and to prove their efficiency through competition with other companies, both domestic and foreign.

"We've done the right thing. Our experimentation in the past decade or so has successfully created market-savvy SOEs," John Zhao, CEO of Hony Capital, told China Daily.