Described by the media as “the most handsome and gentlemanly economist in China”, Joe Hu founded Chun Hua Capital in 2011. Founded nearly a decade ago, Chunhua Capital has yet to produce projects with more than 10 times returns, and when its most anticipated project, Ant Group, was about to go public, Hu was facing a reputation crisis.
New Fortune’s study of Chunhua Capital’s operations found that its domestic funds are not directly related to Hu Zuliu at the equity and management levels, but manage 34 funds through two companies wholly owned by his sister-in-law, Hu Yuanman. Hu Zuliu, who has a strong circle of friends and professional aura, invested in 31 key projects, the highest return of 5 times, and head private equity performance is still a gap. Ant group to 2.09 trillion valuation IPO, will become its highest return project.
Ant group listed on the eve of, all kinds of clamor, a called “Hu Zuliu, your conscience does not hurt? The article earlier also exploded public opinion. For a time, “Hu Zuliu sold his shares in Ant to friends and relatives at a low price” became a hotspot. The official website of Chunhua Capital said that the article “contains a large amount of false information and constitutes slander and insult”.
How does Chunhua Capital, which was pushed to the forefront by the controversy, work? What has been its track record in the 10 years of its existence? What does Ant Group’s investment mean for it?
New wealth research found that Chunhua Capital’s domestic business is not directly related to Hu Zuliu at the equity and management levels, but manages 34 funds through two companies wholly owned by his sister-in-law Hu Yuanman, and indirectly holds the equity of nearly 580 companies through layers of shareholdings, forming a pyramid of shareholding control. The total registered capital of these 34 funds is about 24.236 billion yuan, and the corresponding management scale should be in the order of tens of billions of yuan.
In terms of style, from 2011 to 2017, Chunhua Capital prefers “whaling”, anchoring heavily on large projects with high investment amount. With the accumulation of experience and favored by long-term capital such as Ping An, Taikang, Pacific, etc., its investment frequency increased significantly after 2017, and switched to “small projects”, and favored hot application projects of mobile internet.
Among the 31 key projects invested by Chunhua Capital, the one with the highest book return is Peng Ding Holdings, with a return of more than 5 times; Suntech Institution has a book loss of more than 60%, and the most famous nine projects, such as Ant Group, Yum China, CaiBao, KouBao and YouBao, have Ali system among the investors. Ant Group listed at a valuation of 2.09 trillion yuan, or bring 10 times the return.
From research transformation investment, with a strong circle of friends and professional aura of Hu Zu Liu, this achievement and head private equity still have a gap.
01, 34 private equity funds, per capita control is not Hu Zuliu.
Hu Zuliu, is a typical example of the post-60s generation who studied to change their fate.
Born in 1963 in Miluo City, Hunan Province, Hu Zuliu was admitted to Luoyang Institute of Technology (now Henan University of Science and Technology) at the age of 17 from Miluo No. 1 Middle School to study chemical engineering and technology. Subsequently, Hu Zuliu was given the opportunity to study abroad on a public mission and received his master’s and doctoral degrees in economics from Harvard University. After graduating from Harvard, Mr. Hu worked at the International Monetary Fund (IMF) from 1991 to 1996 and at Goldman Sachs from 1997 to 2010, where he served as Chairman and Partner of Greater China.
Joe Hu left Goldman Sachs in April 2010 to join the private equity industry. On September 15, 2011, after more than a year of preparation, Primavera Capital Management Ltd (“Primavera Capital”) was incorporated in Hong Kong, with partners Zhai Haitao, Huang Kuangjie and Wang Yang all having worked at Goldman Sachs.
Mr. Hu also serves as the non-executive chairman of the board of directors of Yum China, as a member of the Strategic Development Committee of the Hong Kong SAR Government and the Advisory Committee of the Securities and Futures Commission of Hong Kong, and as a director of Industrial and Commercial Bank of China, Hong Kong Exchanges and Clearing Limited and ChinaAMC.
As a “high-end research, advisory and global alternative investment firm based in China”, Spring Capital has offices in Beijing and Hong Kong, and manages RMB and USD funds with a team of over 40 people.
The two major private equity fund managers in China are Chunhua (Tianjin) Equity Investment Management Company Limited (“Chunhua Investment”) and Chunhua Qiushi (Tianjin) Equity Investment Management Company Limited (“Chunhua Qiushi Investment”). “), both registered in Tianjin, with registration dates of April 22 and 23, 2014 respectively, managed a total of 29 funds of record in China, with the legal representative being Wang Xueqing. Publicly available information shows that Ms. Wang Xueqing is an executive director of Chunhua Capital and has worked for Meishi Power and Yuanda Air Conditioning.
Among them, Chunhua Investment was established on December 16, 2009, with a registered capital of 13 million yuan and a paid-in ratio of 100%, with Hu Yuanman as the investor, managing 6 funds under its management.
Chunhua Qiushi Investment was established on March 25, 2011, with a registered capital of RMB100 million, paid-in ratio of RMB25 million, and the investor is Mind Chunhua (Tianjin) Asset Management Co. Mingde Chunhua was established on December 4, 2015, with a registered capital of RMB100 million and paid-in capital of RMB2 million, with Hu Yuanman and Wang Xueqing holding 99.95% and 0.05% of shares respectively.
New Wealth retrospectively inquired through Chunhua Capital’s investment projects that it actually managed a total of 34 private equity funds (Table 1), with a total registered capital of about 24.346 billion yuan.
It is noteworthy that Hu Zuliu in these 34 funds not only does not exist in the investment share, more does not hold any position, 34 funds of the actual control per capita for Hu Zuliu’s sister Hu Yuanman.
Enterprise check data shows that Hu Yuanman directly holds 99.95% of the shares of Mingde Chunhua, 100% of the shares of Chunhua Investment, through the two fund management companies, indirectly control 34 private equity funds. These private equity funds and through layers of shareholding, such as a pyramid of indirectly holding nearly 580 shares of the enterprise.
Chunhua Investment, in which Hu Yuanman directly holds 100% of the equity, is the earliest fund management company established by Chunhua Capital in China, founded on December 16, 2009.On August 21, 2020, its shareholders changed, before the change to 99.95% held by Hu Yuanman and 0.05% held by Hu Zuwu, after the change, Hu Zuwu withdrew and transferred his stake to Wang Xueqing.
According to the aforementioned Conscience article, it was Hu Yuanman and Hu Zuwu who took over the stake in Ant Group “at an incomprehensibly low price”.
According to the article, Mr. Hu, an investor, used 1 million yuan to buy the Qiushi Collected Funds Trust Plan (“Qiushi Fund”) issued by Ping An Trust in 2011, with Hu Zuliu as the fund manager. He learned from the product report sent by Ping An Trust every year that Qiushi Fund invested in Ant Jinfu in 2015 and held 0.1% of the equity, and also held 10% of Huaxia Fund (3% withdrawn before December 2014, 7% left). at the end of 2018, Mr. Hu suddenly received a notice that the assets held by Qiushi Fund (Ant Jinfu 0.1% and Huaxia Fund 7%) were packaged and transferred at a low price. To the third party, Mr. Hu’s 1 million yuan after deducting the application fee and fund management fee, 7 years of income of less than 8,000 yuan. Mr. Hu and other Qiushi fund investors hired a team of lawyers, after nearly a year of investigation, found that the third party Hu Zuwu and Hu Yuanman, the transferee, is the brother and sister of Hu Zu Liu.
“Who is Hu Zuwu?” and “Who is Hu Yuanman, who owns the actual interest of Chunhua Capital?”, once became a full-screen question. Red Star News field visits found that Hu Zuliu home siblings 5 people, the eldest brother has passed away, the second brother remains in Xintang village, Hu Zuwu after retirement from the army in Yueyang as a public official, and later in Huizhou “engage in real estate”, now retired. Hu Yuanman is the youngest sister, has been out of work, and now Changsha with grandchildren, her husband before working outside.
The first thing that you need to do is to make sure that you’re in the right place. Why did Joe Wu, who originally held a 0.05% interest in Matilda Chunhua, withdraw? These shareholding arrangements and changes are puzzling.
- Starting from a “whaling” model, supported by Ping An and a luxury LP team.
As mentioned in the article “Conscience”, Qiushi Fund once held a 10 per cent stake in Huaxia Fund, which was in fact the first “heavy” investment of Chunhua Capital.
On November 8, 2011, Chunhua Capital indirectly acquired 10% stake in Huaxia Fund through its holding company Tianjin Haipeng Technology Consulting Co.
This investment reflects the position Hu Zuliu gave to Chunhua Capital – large-scale controlled equity investment and growth capital investment. The fact that he was able to make a high-profile investment right from the start, choosing the “whaling” model of investing in large projects, showed that Hu, with his strong circle of friends and professional aura, was able to gather high-quality resources.
According to reports at the time, Ping An had helped Spring Capital sell its Qiushi Phase I trust plan, raising 2.2 billion yuan. According to the plan, the scale of Qiushi Phase I is no more than 3 billion yuan, with a term of 6+2 years, a subscription starting at 3 million yuan, and Chunhua Capital is required to charge a 2% management fee and 20% of the income. The plan uses Ping An Group’s seven platforms for sales, which is called the largest umbrella trust fundraising in the history of “7+1” in the industry. This also confirms the statement in the article “Conscience” that Ping An Trust Qiushi Fund once held a stake in ChinaAMC.
In addition to the Ping An Group as an important fundraising platform in its early development, there is also a luxurious LP team behind Chunhua Capital.
There are 34 private equity funds managed by Chunhua Capital in China, including financial institutions such as Ping An Life, Ping An Innovation Capital, Ping An Real Estate, Public Life, China Pacific Insurance, CCB Life, Huarong Capital, Huiquan Investment under Qingdao Government, and investment companies under ICBC International, etc. The earliest LP investment of Chunhua Capital appeared on March 29, 2011.
The earliest LP investment of Chunhua Capital by financial institutions appeared on March 29, 2011, Ping An Life, Everybody Life, and Tianjin Huida Enterprise Management Company Limited, an investment company under BOC Group Investment Co. The fund has directly invested in 12 enterprises, including Shanghai Chunhua Jingyu Equity Investment Partnership (Limited Partnership) and Chunhua Shunde (Tianjin) Equity Investment Partnership (Limited Partnership), thus indirectly holding equity interests in 242 enterprises, including Shanghai iSoftStone, Tianjin Zhengming Modern Logistics, etc. This is also one of the private equity funds with the largest number of invested enterprises under Chunhua Capital.
In addition to direct investment as LP, some of the capital invested by financial institutions did not appear directly in the domestic RMB projects, such as Taikang Life Insurance, which invested directly in Chunhua Capital’s USD fund.
In December 2012, Taikang Life signed an agreement with Chunhua Capital, confirming to invest 300 million RMB in Chunhua Capital.On March 13, 2016, TKPrimavera (BVI) Investments Limited, a project company of Taikang Life, invested 30 million USD as LP to subscribe to the second phase of the USD fund initiated and managed by Chunhua Capital Primavera Capital Fund II L.P., with a capital contribution of approximately 1.76% of the total capital contribution to the fund. Publicly available information shows that Primavera Capital Fund II L.P. was established on May 22, 2014, with a total fundraising scale of approximately $1.7 billion, focusing on investments in the financial services, healthcare, consumer goods and TMT sectors in China.
The 34 private equity funds of Chunhua Capital counted by New Fortune have a total registered capital of about 24.347 billion yuan, of which, institutional investors contributed about 9.614 billion yuan, accounting for about 39.49% of the total capital contribution, and the remaining 60% of the capital contribution all came from Chunhua Capital’s US dollar funds, own funds and funds held by Hu Yuanman. We do not know how much of the institutional capital contribution came from channel funds such as trust plans.
03, Ten years of investment performance under the reputation of the big inventory
After successful fundraising, screening of investment projects becomes an important part of the private equity fund’s revenue and the key to its investment report card.
The standard aura of Wall Street elite and strong connections, in the wild growth of China’s private equity sector, is not the gold standard that works at first try?
Among them, 9 are listed companies, 2 have submitted IPO applications, and 3 have completed exits; the most glamorous are Ant Group and Yum!
The nine companies invested by Ali Group: Yum!
When Chunhua Capital was founded, the big IPs in China’s private equity industry, including Xiong Xiaodao of IDG Capital, Shen Nanpeng of Sequoia Capital China, and Zhang Ying of Matrix Partners China, had already made many successful investments, all of them with high return star projects. Hu, a late entrant, relies heavily on his strong network accumulated over his years of investment banking career, including Jack Ma and Jinbo Li, Chairman and CEO of Xunlei, who have become an important source of investment projects for him in the future.
In particular, Jack Ma, who is only a year younger than him, became the “leader” of Hu Zuliu’s star investment projects. As we all know, Ant Group and Yum China are projects that even with money in their pockets cannot be invested in, while Chunhua Capital’s share of investment should be attributed to Hu’s personal relationship with Jack Ma.
The big brother’s circle of friends is more like a metaphysics. From public records, Ma has been linked to Goldman Sachs, where Hu Zuliu worked, since 1999. At that time, Goldman Sachs, together with Fidelity Capital and the Singapore government’s Technology Development Fund, invested US$5 million in Alibaba, which had just been founded half a year earlier, acquiring a 40% stake in the company. This international investment undoubtedly provided a strong endorsement for Alibaba.
Comparing their biographies, it is rumored that Jack Hu, who served as Co-Chairman of the Asia Pacific Council of The Nature Conservancy, and Jack Ma, who is also a board member of The Nature Conservancy, recommended Ma to join the association. He was also one of the lecturers at Lakeside University, where Jack Ma was president. With the friendship as a foundation, it is easy to understand why when Joe Hu turned to private equity, he joined hands with Alibaba Group, which is also an expert investor.
Looking at Chunhua Capital’s investment list, there are 9 companies that have been partnered with Ali Group, namely Ant Group, Yum! Currently, the project with the highest countable revenue is Yum China.
On November 1, 2016, Yum China issued 17,064,172.74 common shares at a price of $24.03 per share to Chunhua Capital, which contributed $410 million in subscriptions. As a result of the adjusted volume-weighted average transaction price per share of $25.05 per share, which was higher than the transaction settlement price of $24.03 per share, on January 9, 2017, Yum China repurchased 699,394.74 shares from Chunhua Capital at a price of $0.01 per share, with Chunhua Capital’s actual shareholding being 16,364,778 shares.
On January 9, 2017, Yum China issued two tranches of warrants to Chunhua Capital: the first tranche of warrants to subscribe for 7,309,057 common shares from Chunhua Capital at $31.40 per share, at a cost of approximately $230 million, and the second tranche of warrants to subscribe for 7,309,057 common shares at $39.25 per share, at a cost of approximately $287 million. As agreed, the warrants are exercisable at any time until October 31, 2021.In October and November 2019, Spring Capital entered into prepaid forward sale transactions with certain financial institutions and sold the second tranche of warrants it held.
On May 20, 2020, Chunhua Capital’s related filings with the U.S. Securities and Exchange Commission disclosed that it held an aggregate of 238,776,450 ordinary shares of Yum China, representing 6.3% of its total share capital. Among them, Pollos Upside, an affiliate of Chunhua Capital, directly holds 16,364,778,000 common shares and 7,519,667,000 warrants, representing the shares issued under the first batch of warrants.
On 10 September 2020, Yum China was secondary listed on the Hong Kong Stock Exchange at an issue price of HK$361.63 per share, and by 21 October 2020, its share price had risen to HK$416.4 per share, with a total market capitalization of HK$174.5 billion. Chunhua Capital holds 238,767,450 shares of Yum China, with a market capitalization of HK$9,942 million.
And its cost of acquiring the stake is about US$648 million (not counting the contingent gain on the transfer of the warrants), which is equivalent to HK$5.022 billion (US$1 is about HK$7.75). From this rough calculation, Chunhua Capital’s 4-year book return on this investment is about 98%, with an annualized return of about 24.5% (Yum China was listed on the US stock market in October 2016, and its US stock market value is slightly lower than that of Hong Kong stocks; this article uses Hong Kong stock price to calculate the market value of its holdings).
Another big project in which Chunhua Capital followed Ali’s investment was Ant Group. It is also the middle operation that has been questioned by investors.
New wealth research shows that Chunhua Capital through three funds, invested in three times. 29 June 2015, Chunhua Capital’s Chunhua Jingxin (Tianjin) Investment Center (limited partnership, referred to as “Chunhua Jingxin”) invested in Ant Group to obtain 0.51% equity, the financing, Ant Group registered capital 1.352.6 billion yuan, valued at 260 billion yuan, with an investment unit price of approximately $192.22 per share.
On May 13, 2016, Chunhua Jingfu (Tianjin) Investment Center (Limited Partnership), a subsidiary of Chunhua Capital, acquired 0.27% equity interest in Ant Group, which was valued at RMB 390 billion after the financing, with 16 investment institutions paying consideration of RMB 29.1 billion.
In July 2018, Chunhua Rongxin (Tianjin) Equity Investment Fund Partnership (Limited Partnership), a subsidiary of Chunhua Capital, acquired 0.29% equity interest in Ant Group, and after the domestic financing, Ant Group was valued at 960 billion yuan and the investment institutions paid consideration of 21.8 billion yuan.
With the subsequent financing of Ant Group, Chunhua Capital’s shareholding was slightly diluted, and as of June 28, 2020, its three funds held a total of 0.66% of Ant Group’s shareholding (Table 3). From the information on the previous changes in Ant Group’s shareholding, Chunhua Capital has never reduced its shareholding since the first time it invested in Ant Group.
Chunhua invested in three funds of Ant Group, shareholder penetration shows that Hu Yuanman is the main contributor, and in Chunhua Jingxin LP, Ping An Trust and Everybody’s Insurance contributed about 12%; in Chunhua Rongxin LP, Everybody’s Insurance contributed about 7.41%; and in Chunhua Jingfu LP, Ping An Group contributed 29.04%.
The presence of Ping An Trust in Chun Hua Jing Fu LP corresponds to the events referred to in the Conscience article, which took place during Chun Hua Capital’s first investment in Ant Group.
According to this article, in May 2015, Qiushi Fund invested 199 million yuan in Chunhua Jingxin, accounting for 22.22% of the equity; later Chunhua Jingxin invested in Ant Group, accounting for 0.47% (Ant Group announced 0.51%).On September 30, 2017, Ping An Trust made a liquidation report, declaring the trust assets to be completed liquidated and turned into escrow assets.December 2018. , the assets of the Qiushi Fund were packaged and transferred to a third party.
Due to industrial and commercial registration information did not disclose the three funds after the establishment of the change of the investor, we have no way to determine whether the spring capital will be Ping An Trust investment client’s holding interest transferred to Hu Yuanman.
It must be said that, in the regulatory layer of channel capital supervision is not fully tightened period, “limited partnership” type private equity fund LP, there are many trusts, banks and other institutions of the capital management plan. This channel, lower the investment threshold, most investors do not meet the private “qualified investors” requirements, scattered and the number is relatively large, the investor transfer rights and interests are not easy to monitor. In addition, private institutions LP change more common, but the premise is the LP voluntary withdrawal, replacement.
October 21, 2020, the ant group in Hong Kong, A shares in the two listing applications, has been approved by the Securities and Futures Commission, will be on October 29 to open the application, to 68.8 yuan / share price of not more than 1.671 billion shares issued. According to the number of 1.671 billion shares issued, the shares of Ant Group held by Chunhua Capital will be diluted to 0.6144%, and the market value of Chunhua Capital’s shareholding is about 10.758 billion yuan.
By this rough calculation, Chunhua Jingxin’s investment income is about 8.04 times, Chunhua Jingfu’s investment income is about 5.36 times, and Chunhua Rongxin’s investment income is about 2.18 times. As the share price rises after the IPO, the market value of Chun Hua Capital’s holdings will grow further.
In addition to investing in Yum! China and Ant Group, Chunhua Capital has partnered with the Ali system to invest in companies such as Bird Network, Koubei, Hello Travel, Youbao Online and Byte Jump.
On October 21, 2018, today’s headlines parent company byte jump ceded 5% of the equity, about $ 4 billion Pre-IPO round of financing, investors include Softbank, KKR, Yunfeng Fund, Chunhua Capital and so on. The company is also known as the third pole of mobile applications other than Ali and Tencent, and is also known as a unicorn that “can’t invest even if there is money in it”. If listed in the future, byte-hopping valuation or in the trillion level, with stable investment income is expected.
On August 21, 2019, Beijing Youbao Online Technology Company Limited (referred to as “Youbao”) announced the completion of 1.6 billion yuan of financing, led by Ant Financial Services and followed by Chunhua Capital, in which Ant Financial Services invested 1.2 billion yuan in the form of capital increase to Youbao, and Chunhua Capital invested 400 million yuan. Founded in 2011, Youbao Online’s main business is to sell daily-use FMCG products such as beverages and food through both online and offline channels through intelligent vending machines, supplemented by vending machine sales, leasing and vending machine advertising, display and other related value-added services, and is committed to becoming China’s largest intelligent self-service retail operator.
Youbao Online had listed on the New Third Board on February 24, 2016, and terminated its listing on March 12, 2019, or in preparation for its A-share listing. Its 2017 revenue of 2.103 billion yuan and net profit of 116 million yuan, initially with the profit conditions for A-share listing.
Chunhua Capital follows Ali’s investment are all star projects, Kouji, Caijiao, Youbao, Byte, are all potential companies with listing expectations, investment is equivalent to having a stable “income guarantee”.
Participating in the privatization of Kangpeng: exited before the listing on the board, with a return of only 20.84%.
CompuChem (CPC.N) is the first privatization project that Chunhua Capital participated in after its establishment.
Once listed on the New York Stock Exchange on June 24, 2009, Compon Chemical is a leading manufacturer of fluorine-containing liquid crystal monomers in China, a core supplier of liquid crystal hybrid global giant JNC of Japan, and a key supplier of hybrid global shipment leader Merck of Germany (the global market share of the three hybrid giants Merck of Germany, JNC of Japan and DIC of Japan exceeded 80% in 2017).
However, Compon Chemical does not belong to the four popular Chinese stock sectors of healthcare, education, TMT and PV, but is in a relatively marginal and low concern industry segment, its valuation in the US capital market is low, and its share price has never exceeded the offering price again after the IPO. Therefore, only 2 years after listing, CompuChem started privatization plan. At this time, Chunhua Capital started to intervene, and its investment platform is Chunhua Houde (Tianjin) Equity Investment Partnership (Limited Partnership, referred to as “Chunhua Houde”).
In 2011, Kanpeng Chemicals was privatized and delisted from the New York Stock Exchange in August 2011. According to the announcement and related agreements during the listing period, the capital raised in the privatization process consisted of US$6 million from Wise Lion, US$65 million from Chunhua Capital and US$68 million from Standard Chartered Bank (Hong Kong). During the privatisation process, the buyer consortium exited without obtaining cash consideration and subscribed for the corresponding shares of the acquired parent company, Kangpeng Limited.
As of October 2018, after the dismantling of the red-chip structure of Kangpeng Chemical and the capital increase of the employee shareholding platform, Chunhua Investment still held 25.9% of Kangpeng Limited (Figure 1).
In November 2018, Chunhua Houde transferred its entire equity interest in Kangpeng Limited (corresponding capital contribution of $66.75 million) to investors such as Wuxi Yunhui, Linzhe, Fengyi Chuanliu, Fengyi Mingyuan, Tongxiang Jiawu, Tongxiang Yunhui, and Qianhai Fund, respectively, for a transfer consideration of $507.3 million.
Chunhua Houde invested a total of more than seven years in Kangpeng Chemical, and on March 25, 2011, invested $65 million to participate in the privatization of Kangpeng Chemical (calculated at an average annual exchange rate of 6.4588 USD to RMB 2011, which is about RMB 419.8 million), and then replaced its investment into Kangpeng Limited, which was transferred in November 2018 for an exit of 507.3 million yuan. This investment of Chunhua Capital earns approximately 20.84% with an annualized yield of approximately 2.78%.
After that, on March 21, 2019, Kanpeng Technology as a whole changed to a joint stock company – Shanghai Kanpeng Technology Co. The plan to issue no more than 90 million shares, expected to raise 700 million yuan, by this calculation, the company’s expected listing issue price of 7.78 yuan / share. According to this calculation, if Spring Capital did not exit, the market value of its holdings will reach 584 million yuan, compared with its 507.3 million yuan transfer price, although the difference is not much, but after the listing of Kampong Technology, or will also bring the proceeds of share price growth.
Chunhua Capital’s exit, perhaps limited by the survival cycle of private equity funds. When taking over the project, a PE fund partner predicted that “if the project is successfully completed, Chunhua Capital will probably get 5-7 times the return”, which shows how far the distance between ideal and reality.
The first single convertible bond: 8.5 years of investment in Heartland Fertilizer with an annualized yield of 6.84%.
On 28 November 2011, Spring Capital, through its wholly-owned subsidiary Nitro Capital Limited (“Nitro”), acquired a 5-year RMB convertible share of approximately US$51 million (equivalent to approximately RMB324 million) in Xin Lianxin Fertilizer (01866.HK). The bonds, which pay an annual dividend of 4.5%, have an agreed conversion price of $1.84 per share, a 13% premium to the average price of the previous 20 trading days.
This is the first agricultural company that Chunhua Capital has invested in since its establishment. Heartland Fertilizer is headquartered in Xinxiang, Henan Province, mainly engaged in the production and sales of urea, compound fertilizer and methanol, and was once the largest urea producer in Henan Province.In June 2007 and December 2009, Heartland was listed on the Singapore Exchange and the Hong Kong Stock Exchange successively.
On December 24, 2016, Heartland Fertilizer entered into an amended agreement with Nitro to extend the maturity date and reduce the interest rate of the bonds, which were extended to mature on December 21, 2018, with the interest rate reduced to 2% per annum.On January 16, 2018, Nitro sold to Pioneer Top (a management shareholding platform) and other investors approximately $116.8 million of the restated Bonds, which are convertible into 63.36 million ordinary shares at an initial conversion price of $1.84 per share, for an aggregate consideration of HK$190.8 million (approximately RMB163 million).
Pursuant to the relevant arrangements, certain investors exercised the right to convert an aggregate of approximately $19.5 million of the Restated Bonds at an initial conversion price of $1.84 per share.On 2 March 2018, Heartland Fertilizer allotted and issued an aggregate of 10.56 million ordinary shares to certain investors.
On the maturity date of the bonds on December 21, 2018, the remaining Restated Bonds were mandatorily converted at an initial conversion price of $1.84 per share, and Pioneer Top and Nitro received an aggregate of 165.44 million common shares allotted by Heartland Fertilizer.
Upon completion of the conversion, Nitro holds 112.64 million shares of Heartland Fertilizer, representing 9.61% of the total share capital. Based on the price of HK$2.4 per share of Heartland on 21 October 2020, the market value of Nitro’s shareholding is approximately HK$270 million (approximately RMB234 million).
Nitro’s proceeds from the transfer of debt of $163 million and the current market value of its shareholding of $270 million, plus the proceeds from the 6-year annual dividend of approximately $79.38 million, total $512.38 million. With an initial investment of $324 million, the book yield of Chunhua Capital’s investment is approximately 58.14%, and the annualized yield of the investment over 8.5 years is approximately 6.84%, which is equivalent to the mid-range yield level of the convertible bond coupon rate.
The fastest exit project: 2 years of investment in Xunlei, IPO exit proceeds of about 3.2 times
Compared with the long cycle of Kangpeng Science and Technology and Heartland Fertilizer, Chunhua Capital’s investment in Xunlei (XNET.O) can be described as a quick decision.
In March 2012, Chunhua Capital invested $50 million in Xunlei.On May 23, 2014, Xunlei’s prospectus disclosure before listing in the U.S. showed that Chunhua Capital held 15 million shares, accounting for 5.7%, and Wang Yang, a partner of Chunhua Capital, served as a director of Xunlei.On June 25, 2014, Xunlei went public and traded on NASDAQ at an opening price of $14.21. The company was listed on the NASDAQ on June 30, 2014.
June 30, 2014, Xunlei top 20 institutional shareholders, Chunhua Capital has disappeared, and subsequently, Wang Yang also ceased to be its director, which shows that Chunhua Capital chose to exit in Xunlei IPO. If calculated by Xunlei’s closing price on the first day of trading, the 15 million shares held by Chunhua Capital at the time of exit is worth $210 million, two years of investment income of about 3.2 times.
The biggest loss project: Suntech’s share price fell in a row, $90 million floating loss of 63.5%.
On the online education windfall, good future and other money-making effects make the capital palpitations, but not all investments are “sure-fire”.
On August 19, 2017, PV Pluto Limited, an offshore fund of Chunhua Capital, subscribed to 413,194.5 Class B preferred shares issued by Suntech Institution (STG.N), which focuses on online adult education (including academic and vocational education), for a consideration of $90 million, at an average price of about $217.815 per share. Subsequently, Suntech Institution converted its share capital and Spring Capital’s shareholding rose to 826,389 shares, representing approximately 13.2% of its equity.
On March 23, 2018, Suntech Institutional listed on the New York Stock Exchange and raised $149.5 million by issuing 13 million ADSs at a price of $11.50 per ADS (every 25 ADSs equals one Class A common share). After Suntech Institutional’s IPO, Chunghwa’s stake in the company dropped to 11.96%.
Notably, after Suntech Institutional went public, the share price oscillated down from the offering price of $11.54/ADS to a low of $0.81/ADS on April 8, 2020.As of October 20, 2020, Suntech Institutional closed at $1.59/ADS, only 13.78% of the offering price.
As of March 31, 2020, Chunghwa Capital still held 12.15% of Suntech Institutional’s equity. At $1.59/ADS (equivalent to $39.75/share), the market value of Chunhua’s stake is about $32.849 million, which is a 63.5% book loss from the initial $90 million over 3 years of investment.
Highest return project: 15 months investment in Pengding IPO, 5.32 times book return.
In Peng Ding Holdings project, Spring Capital has realized the “ideal” of small investment, short cycle and high return.
Peng Ding Holdings, the most stable and accurate project in which Chunhua Capital has invested so far, has entered only 15 months to usher in the company’s listing, and its share price has continued to rise after listing, with a total market capitalization of over 120 billion yuan.
On June 1, 2017, Chunhua Capital’s Qiushi Xingben (Tianjin) Investment Center (Limited Partnership, referred to as “Qiushi Xingben”) Fund, participated in the eleventh capital increase of Peng Ding Holdings, subscribed for 23,529,411 of its shares at 200 million yuan (subscription unit price of 8.5 yuan/share), and assigned director Huang Kuangjie.
The main capital LP of Akishimoto is Junkang Life. Business information shows that on June 12, 2017, Junkang Life contributed 2.4 billion yuan to Weifang Juxin Jinrong Investment Management Partnership (Limited Partnership) and held 99.9996% of its equity (Figure 2).
Figure 2: Qiushixingben’s shareholding structure
Mystery Granny! What is the background of the 10.8 billion market value of the Ant stake, or the actual controller of 34 funds of Chunhua Capital?
Data source: Enterprise Search, New Fortune.
PCB is a bridge that carries electronic components and connects circuits, known as the “mother of electronic products”, and plays a fundamental role in the whole electronic industry chain, according to Prismark’s ranking of PCB enterprises by receivable statistics. From 2017-2019, Pangding Holdings was the world’s No. 1 in both years.
On September 18, 2018, Pengding Holdings was listed on the small and medium-sized board at RMB 16.07/share, with Qiushi Xingben holding 1.1311% of its equity. After the listing, the share price of Pengding Holdings continued to rise until October 9, 2020, when the closing price of 58.84 yuan per share was a record high. With a market value of 1.384.5 million yuan for its stake, plus dividends of 0.5 yuan per share (before tax) for two consecutive years in 2018-2019, Qiushixingben received dividend payments of 23,529,400 yuan (before tax) for two years. From this calculation, Chunhua Xingben’s investment in Pengding Holdings is approximately 6.04 times its book income.
As of October 20, 2020, Pengding Holdings’ stock price was slightly rebounded after probing high, closing at 52.75 yuan per share, the market value of Qiushixingben’s holdings dropped to 1.241 billion yuan, and Chunhua Capital’s book earnings dropped to 5.32 times.
Fast in and out of entertainment first single: investment in LeTV Pictures, half-year earnings of 40.5%
Back in the heyday of LeTV, under the “optimistic” expectation that LeTV Pictures would be acquired by LeTV, Chunhua Capital participated in two rounds of financing for LeTV Pictures.
On September 29, 2015, LeTV Pictures received 765 million yuan of financing, the investors are Rongshin Bank Fund, Shanghai Chunhua Jingli Investment Center (Limited Partnership, referred to as “Chunhua Jingli”) under Chunhua Qiushi Capital, LeTV Xingen One under LeTV Xingen Vertical Integration Ecological Fund, Beijing Siwei under CITIC Guoan Fund. Investment, etc.
On October 20, 2015, Le Chuang Entertainment (formerly known as Le Vision Pictures) conducted a Series B+ round of financing, with investors including Li Xiaolu, Hua Hong Asset, Towers Capital, Sun Honglei, Chunhua Jingli, Sun Li, Mingjia Capital, and CITIC Guoan Fund.
In the two rounds of investment, Chunhua Jingli invested a total of 300 million yuan in LeTV Pictures, holding 4.3% of its equity.
Chunhua Jingli LP is Chunhua (Tianjin) Equity Investment Management Co. which is wholly owned by Hu Yuanman (Figure 3).On May 6, 2016, LeTV Pictures (Beijing) Co. was acquired, and Chunhua Jingli was able to exit, the transfer consideration was 421,507,800 yuan, and Chunhua Capital invested for six months with a book return of 40.5%.
Before LeTV burst, Chunhua Capital exited LeTV Pictures, which I don’t know whether it was luck or vision.
The most embarrassing project: investment in the Airey consulting boss lost contact, the New Third Board listing is far away
The first stock of investment consulting, but encountered the “black swan” of the loss of the company’s controller, Airee Consulting is known as the most embarrassing investment project of Chunhua Capital.
On June 21, 2016, Chunhua Capital’s Chunhua Jingda (Tianjin) Investment Center (Limited Partnership, referred to as “Chunhua Jingda”) subscribed to the new registered capital of Airey Consulting 3,333,155,560,000 yuan, the subscription unit price of 1 yuan / registered capital. Chunhua Jingda was established as a capital contribution by Hu Yuanman and Wang Xueqing (Figure 4).On February 5, 2017, the whole of Airei Consulting was changed to a joint stock limited company, and the net assets were converted to 60 million shares. Chunhua Jingda held 14,994,000 shares, accounting for 24.99% of its total share capital.
On April 14, 2018, Airei Consulting applied to be listed for trading on the New Third Board, but then came the news that its founder, Yang Weiqing, had lost contact with the company, and so far Airei Consulting has still not been listed, nor has it raised any new financing, and it is not yet possible to estimate the profit and loss of Chunhua’s investment.
Cross-border M&A Projects: Teaming up with Xiwang Food to acquire Kerr, a long road to exit
On September 20, 2016, Chunhua Jingxi (Tianjin) Investment Center (Limited Partnership, “Chunhua Jingxi”), managed by Chunhua Capital, joined forces with Xiwang Foods to acquire Canada’s leading sports nutrition and weight management health food at a consideration of US$584 million (RMB3,900.3 million) 80% of the equity interest in the dragon leader Kerr.On November 2, 2016, the settlement was completed and Chun Hua Jingxi indirectly held 20% of the equity interest in Kerr.
In this acquisition transaction, the capital structure between Chun Hua Jingxi and Xiwang Food was 75% owned by Xiwang Food and 25% by Chun Hua Jingxi (Figure 5). Chun Hua Jingxi invested a total of 975.1 million yuan and still holds a 20% stake in Kerr. Business information shows that Chunhua Jingxi was established on December 4, 2015, with a registered capital of $602 million, and its main funding LP is Huarong Capital Management Limited.
It is noteworthy that due to the favorable acquisition of Kerr, the share price of West King Food rose to a high of 146.3 yuan per share (after reweighting price) in November 2016, and then its share price shocked down, and by September 25, 2020, the closing price of West King Food dropped to 63.15 yuan per share (after reweighting price), which has fallen by 56.84%.
The acquisition of Kerr by West King Foods carried a huge debt, with an interest expense of $236 million in 2019 and a debt-to-equity ratio of 49.62%, higher than that of companies in the same industry. Under financial pressure, the company is unable to acquire Chun Hua Jing Xi’s stake in Kerr with cash. On the other hand, the stock price of Xiwang Food is depressed, and its major shareholder’s willingness to acquire Chunhua Jingxi’s stake in Kerr by issuing additional shares will not be very high, which also adds variables to Chunhua Jingxi’s exit.
- In recent years, it has turned to the limelight: eggshell apartment and Xiaopeng Auto went public quickly.
Overview of Chunhua Capital’s investment preferences, with 2017 as an obvious style switching node.
Before 2017, Chunhua Capital prefers star projects with relatively “heavy” investment amount and company power, with relatively long investment cycle and strong exit uncertainty, such as Kangpeng Chemical and Heartland Fertilizer projects, all of which have investment cycles of more than 7 years. Large-scale projects dominate, making its investment field relatively decentralized across finance, agriculture, technology, film and television and other industries, and covering A-F round of financing for corporate growth.
After 2017, Chunhua Capital’s investment fields became focused, focusing on five main areas: one is transportation, having invested in companies such as Hello Travel, Xiaopeng Auto, Dasou Car, Can Valley Group, Guan Yu Battery, etc.; the second is life and consumption, having invested in Koubei, Caijiao, Youbao Online, Eggshell Apartment, Junlebao, etc.; the third is finance and technology, having invested in Ant Group, Dasou Finance, Lujinshi, etc.; the fourth is education, having invested in Onion Math, Homework Help, etc.; the fifth is healthcare, having invested in Lao People and ZAPSurgical Systems.
Spring Capital has invested in a number of companies in the wind, especially in Internet start-up companies. These companies have frequent financing rhythm and fast listing speed, and for investment institutions, the investment cycle is greatly shortened as there is a longer waiting period than traditional projects. This investment preference is in line with the investment trend of VC/PE industry.
Especially for eggshell apartment and Xiaopeng automobile, Chunhua Capital was listed two years after investment.
On January 17, Eggshell Apartments became the first Chinese company to be listed on the New York Stock Exchange in 2020. Based on the offering price of $13.50/ADS (1 ADS is equal to 10 shares of Class A common stock), its market capitalization reached $2.74 billion.
Founded in early 2015, Eggshell Apartments’ products mainly cover white-collar scattered apartments and blue-collar concentrated apartments. After the listing of Eggshells Apartments, long term rental apartments have been “thunderstruck” and its share price has been on a downward trend, closing at $2.6/ADS (equivalent to $0.26/share) as of October 20, 2020; Spring Capital holds 118.7 million shares, accounting for 6.5% of its total capital, with a market value of $30.826 million. .
Xiaopeng Motor goes public in the US on August 27, 2020, making it the third new Chinese carmaker to IPO, after Azure and Ideal Auto. The IPO of Xiaopeng Auto, which raised $1.5 billion by issuing 100 million ADSs, is priced at $15/ADS (1 ADS is equal to 2 common shares). Chunhua Capital holds a 2.77% stake in Xiaopeng Auto. As of October 20, 2020, Xiaopeng closed at $20.14/ADS, and Chunhua Capital’s holdings had a market value of $401,633,400.
After entering 2020, the pace of PE investment slowed down due to the impact of the new crown epidemic, Chunhua Capital still invested in dairy company Junlebao, new energy battery manufacturer Zhuhai Guangyu Battery, and medical services company ZAP Surgical Systems, continuing its style of targeting windfall companies and further broadening its investment field.
On Jan. 9, Chunhua Capital invested in ZAP Surgical Systems, a San Carlos, California-based medical technology company that is dedicated to developing next-generation radiosurgery robots for non-invasive tumor ablation. Chunhua Capital’s investment is an important step in this hot field of medical technology.
On February 20, Chunhua Capital’s Qiushi Xingde (Tianjin) Investment Center (limited partnership) invested in Zhuhai Guan Yu Battery, with a capital contribution of 14,879,857,000 yuan, holding 1.5401%, Zhuhai Guan Yu is a lithium battery R & D, production and sales integration enterprise invested by Gree.On May 6, 2020, Zhuhai Guan Yu Battery Co. Zhuhai Guanyu Battery Co., Ltd. or prepare for future listing.
On June 19, Chunhua Shaojing (Tianjin) Equity Investment Partnership (Limited Partnership), a subsidiary of Chunhua Fund, invested in Junlebao, a dairy company that had left Mengniu and was flying solo, and made a capital contribution of 5,391,360,000 yuan, holding 10.3% of the shares; meanwhile, Qiushi Xingde (Tianjin) Investment Center (Limited Partnership) made a capital contribution of 5,391,360,000 yuan, holding 10.3% of the shares. 1,996,802,000 yuan, holding 3.81%. Market rumors, Junlebao will be listed in Hong Kong shares and A shares, but in 2019 Junlebao real controller by Mengniu Dairy changed to founder Wei Lihua, according to the regulations related to listing, real controller change 3 years after the company can be listed.
On the whole, Chunhua Capital 34 funds focused on 31 projects, the investment return of the project can be calculated between a loss of 60% to 5.32 times earnings, Ant Group listed or will become Chunhua Capital’s first 10 times return project.
The data released by the Investment Research Institute shows that from the first half of 2015 to the first half of 2019, the average book return on the IPO exit of projects invested by VC/PE institutions is between 1.93 and 4.84 times. And private equity pass related statistics show that the average book return of IPOs within the enterprise from 2015-2019 is between 2.45-3.61 times. The return on investment of Spring Capital’s calculable projects is on par with the industry average.
At present, most of Chunhua Capital’s investment projects are far from the exit period, whether these projects can bring considerable returns in the future, time to verify. Investment is a game of risk and return, and with the trend of lower return in the PE industry as a whole, Hu Zuliu, who has a long history of research, still needs to continue to prove his investment ability with bright achievements.
Recent Comments