Carlyle Group will keep its pace of spending in China and India, taking equity investments in companies linked to basic consumer products, education, medical services and energy to grow amid a global slowdown.
Carlyle Asian Growth Partners aims to keep spending on average between $200 million and $300 million a year in China, said Wayne Tsou, managing director and head of the fund. He didn’t give an investment target for India.
“These companies are the most enterprising and they are most attuned to opportunities in the market,” Tsou said in an interview in Beijing yesterday. “More than 80 percent of the energies of my fund and team are spent looking at China and India opportunities.”
China’s gross domestic product expanded 6.1 percent in the first quarter and the country is battling the global recession with a 4 trillion yuan ($585 billion) stimulus plan to achieve 8 percent growth this year. India’s economy may grow 5.1 percent this year, compared with 7.3 percent in 2008, according to the International Monetary Fund.
Carlyle Asian Growth makes equity investments in small and medium-sized companies that are typically at the top in their fields, and covers China, India, Japan and South Korea, Tsou said. These companies on average can generate at least 50 percent growth a year in net income and sales, he said.
“Government policies and direction have little impact on our investment mode in the sense that we’re more focused on high-growth companies with good potential and that are run by outstanding local private business leaders,” he said.
Carlyle Asian Growth has invested $500 million of equity in more than 20 Chinese companies across 11 industry sectors. It has been investing more in China “in terms of pricing” because of higher asking prices for private-equity transactions in India, which is a more mature capital market, Tsou said.
For the past few months, Tsou has also been looking at a “large number” of Indian companies and opportunities. “The prices in India are falling and India is more sensitive to capital market changes,” he said.
Still, both economies aren’t immune to the global recession. China’s exports, especially of low-cost products such as toys, have been hard-hit as mounting job losses in the main markets of U.S. and Europe prompted consumers to cut spending.
The appetite for private-equity and venture-capital transactions may also be waning in China. The China Venture Capital Association, in a survey conducted in the first quarter, found investor confidence in China weakened in the short-term, its president Frances Huang said in an interview in Beijing. Thirty-nine of its more than 150 member companies participated in the survey.
“It’s not a case where they are exiting China,” Huang said. “Many investors still believe in the long-term growth prospects of the Chinese economy and companies.”
China’s benchmark Shanghai Composite Index rose 97 percent in 2007 before plunging 65 percent last year. India’s benchmark Bombay Stock Exchange Sensitive Index climbed 47 percent in 2007 and fell 52 percent last year.
In China, the drop in the value of companies on paper can be a boon for private equity investors because a more “rational investment mentality” in the industry is leading to more reasonable prices, Huang said.
“Now that the market has dropped, you can really see which company is actually fundamentally healthy and which is speculative; this is a better time for making investments,” Tsou said.
The Shanghai Composite, the second-best performer in the world this year, has rallied 44 percent since China announced its stimulus package Nov. 9, as economic data suggest the world’s third-largest economy is responding to the move.
“The Chinese people are still living out their dreams and aspirations, like the American dream,” Tsou said.