Finally… Someone With Some Foresight

Tuesday, November 20, 2007 0:30
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For much of the last 2 years, I have been working to convince people that the opportunities in China go far beyound the city limits of Shanghai, Beijing, and Guangzhou.  that if a firm looks at the cities of Wuhan, Chengdu, Xi’an, and Xiamen, they will uncover that there are some very interesting opportunities there, some strong talent, and financial rewards.

So when I read Chilton Investment sets sights on western China in the China Daily, I immediately saw this as a post.  According to Richard Chilton Jnr, the company’s chairman and chief executive

Chilton Investment had visited Chengdu and Chongqing this year and found many high-quality companies with limited access to capital.

“For most of them, we were the first western investors to visit,” he said.

and al I can say is that it is about time.  while I know there are firms (more manufacturing and real estate) focused showing interest (my second tier reports are one of All Roads most heavily trafficed posts), the fact is that many PE/ VC  funds have shied away believing that the best deals are here.

The problem is that for firms in Shanghai, there is a tour that everyone makes and with so much attention, so much “love”, the expected valuations are off the chart… but it is easy right?  the executives speak English (pay premium for that), they are McKinsey trained (pay premium for that), and their PPTs have embedded flash (pay premium for that).

Case in point, 2 years ago I was working with a portfolio of assets in Nanjing that offered a 90% chance of a 200% gain in 12-18 month time frame.  the company holding the assets was going through bankruptcy court and was looking to roll out from their debt.  The assets were clean, we had support from the court.. yet no one would bite.


#1 reason: Where is Nanjing?

#2 reason: Shanghai (even at 15%) is safe

In the end, we didn’t fund it, and in any event we were wrong.  the underlying value of the assets went up more than we thought.. and it only took 3 months before a few of the banks called back to see if the opportunity was on the table.

Hopefully we are entering a time where opportunities in the West are given more consideration.  They have 5 star hotels and good restaurants too, but more importantly there are good deals to be had.. you know, companies that have honest manageres who have built revenue streams.

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