China’s internet and technology a US$59 billion trap to investors?
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| Illustration by pinterets (https://www.pinterest.com/pin/497155246360399994/) |
China’s internet and technology a US$59 billion trap to investors?
https://youtu.be/gNqlViPGzgw (video)
PORT MORESBY: The sluggish world economy, greatly stressed by the US-China trade war, is stifling global economies.
Whether one likes it or not, the world’s No. 1 and 3 economic giants will impact every country directly or indirectly, including Papua New Guinea.
Business corporations and their CEOs and CFOs are stressed by the uncertainties and have to be doubly alert in the investments and financial forays.
The latest concern comes from a report published by South China Post as reproduced below for the convenient reading of Papua New Guineans:
China’s US$59 billion internet and technology bubble will trap many private-equity investors when it bursts, Bain says
· Investors are stuck with overhang of portfolio companies bought at high valuations amid worsening outlook
· Median return fell to less than two times in 2016-18 from 4.7 times in 2014-15
Georgina Lee
Published: 10:00am, 15 Mar, 2019
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| China claimed more than 70 per cent of the total internet and technology private equity deals in Asia-Pacific in 2018. Photo: Reuters |
According to the report, many private equity (PE) investors are stuck with portfolio companies bought over the past five years at high multiples. They now also face a deteriorating outlook for their investment.
“That scenario, if and when it comes, will make it tough for general partners who have already invested heavily in [the sector] to exit successfully. And the environment for exit is not likely to improve any time soon, given the backlog of companies sitting in the portfolios that were bought at peak prices,” said Kiki Yang, a partner and Asia-Pacific head of private equity at Bain.
China claimed more than 70 per cent of the total internet and technology PE deal value in Asia-Pacific in 2018, during which PE investors put US$59 billion – 20 times the level in 2010 – into its internet and technology companies.
Such companies have drawn mounting speculative investment, much of which was invested through median merger and acquisition deals at the rate of 31 times Ebitda (earnings before interest, taxes, depreciation and amortisation).
This is 2.4 times higher than the median rate for Asia-Pacific deals in 2016-18; and twice as high as for other sectors in China, the report said. About two-thirds of Chinese private equity investors surveyed by Bain also said they saw a “high to very high” risk of this bubble bursting in the coming years.
This risk is further highlighted by data on recent returns. The median return, measured by return multiple divided by invested capital, fell to less than two times during 2016-18; in 2014-15, this stood at 4.7 times.
According to Bain, there is also an overhang of companies with investors waiting to exit, which implies a long list of portfolio companies waiting to be sold. This backlog is caused by poor stock performance by companies that have gone public.
Over the past five years, of the 1,000 internet and technology companies valued at US$10 million or more each in which PE funds have invested, only 130 have reported divestment.
“With recent China internet and technology PE-led IPOs showing signs of fatigue, and companies bought at record high multiples still seating in portfolios, we expect the bubble could burst at any moment,” said Yang.
Over the past two years, as much as 62 per cent of companies that have gone public have lost more than 30 per cent of their IPO capitalisation value, against just 7 per cent in 2015-16. “As the IPO market softens and return multiples drop, funds that overpaid for companies … see no alternative but to hold onto assets,” said Yang.
The report also provided an overall picture of the China market. The PE-backed investment deal value in China rose to US$94 billion in 2018, or 57 per cent of the Asia-Pacific total of US$165 billion. The value of Asia-Pacific exits reached a record US$142 billion in 2018, up 39 per cent over the past five-year average, led by China, India and South Korea. The China exit value reached its highest since 2010, at US$78 billion.
This article appeared in the South China Morning Post print edition as: Tech risk for private equity investors
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In all, 12,000 personnel took part in the military parade at the Zhurihe training base in Inner Mongolia in 2017. Photo: Xinhua
What military hardware will go on show for China’s 70th anniversary parade?
· China’s leadership is reviewing list of weapons for 70th anniversary parade but final line-up could depend partly on relations with US, sources say
· Weaponry on show will be chosen carefully to avoid ruffling feathers amid ongoing trade war
Published: 3:00am, 17 Mar, 2019
There may be still six months to go but preparations are already well under way for a vast military parade to mark the 70th anniversary of the founding of the People’s Republic of China. And while the National Day display on October 1 will be a traditional show of advanced military muscle, the weaponry on show will be chosen carefully to avoid ruffling the feathers of the United States as the two tussle over trade, according to sources close to the Chinese armed forces … for more, go to https://www.scmp.com/news/china/military/article/3001986/what-military-hardware-will-go-show-chinas-70th-anniversary
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