“The so-called ‘unlimited reduction in 2019’ is difficult for the organization to comment on in absolute terms.”
Editor’s note: This article is from WeChat public account “Investing in the network” (ID: China-Venture), author Chai Jiayin, editor Tao Huidong.
It is another wave of VC/PE exit: According to the statistics of Zhongtai Securities Research and Research, the reduction of A-share announcements in the first half of 2019 is close to the whole year of 2018, which is about 3 times that of 2017. Just in the past July, there have been more than 100 investment institutions to get together.
Because of the fund cycle, VC/PE is facing exit pressure, and the valuation of A shares in the second half of 2018 has been repaired. For various reasons, the enthusiasm for VC/PE reduction is very high. There are rumors that under the stagnation of this reduction, many venture capital institutions have even set up a special “reduction department.” However, the China Investment Network has asked several institutions for verification. The other party said that “the ‘holding department’ has not been established.”
Whether there is a reduction in the department, it is obvious that the VC/PE’s 2019 reductions are heavy. Referring to the completion of the reduction plan in 2017 and 2018, if the actual reduction of the scale is about 55% of the upper limit of the plan, the market will continue to reduce its holding capacity by more than 130 billion yuan in 2019.
For VC/PE, the reduction usually means completing the withdrawal and taking the carry, but not all organizations are doing the same. VC/PE also has a lot of people who are stuck, and even “lack of money reduction”. A PE person commented: “The so-called ‘unlimited reduction in 2019’ is difficult for the organization to comment on in absolute terms.”
Foreign PE Clearance Reduction
On July 23, the announcement of the people listed on the main board of the main board showed that the company received the “Notice of Reduction Plan” issued by Zexing Investment. According to the letter, Zexing Investment intends to reduce the total number of shares of the company by no more than 85,337,700 shares, that is, not exceeding 29.78% of the total number of shares of the company.
Ze Xing Investment is a foreign private placement from Sweden. The common people’s prospectus disclosed that EQTGreater China II Limited Fund (hereinafter referred to as EQT) indirectly holds 99.30% of the equity of Zexing Investment through a series of special purpose companies. This shows that Zexing Investment is only an investment platform, and the real controller behind it is EQT. According to CVSource’s investment data, EQT is a private equity investment fund established in 2006 with a total commitment of 535 million US dollars, focusing on equity investment business. EQT is backed by the Swedish private equity firm EQT Group, behind EQT Group.The world’s leading investment institution – Sweden Silver Ruida Group.
When the people went public, Zexing Investment promised: “The company intends to start reducing its share of the shares held by the company after the lock-up period expires. The company will combine the market according to the relevant regulations of the CSRC and the exchange on shareholder reduction. The situation, comprehensive consideration of the interests of all parties, try to adopt a less impact on the market, reduce the holdings of all the shares of the people within two years after the lock-up period expires.” As of July 23, the stock price of the people closed at 59 yuan / share, According to the estimation of Zexing Investment’s shareholding reduction, the liquidation of this clearance may exceed 5 billion yuan.
However, “such high-density large-scale reductions will not become the norm for institutional selling.” Li Hao, who specializes in smart manufacturing investment, told Cast.com that “not every institution has such capital, luck, and Power.”
The most popular ways to reduce your holdings:Continuous small reductions
In fact, because of restrictions in various aspects of the market and policies, more organizations have chosen the continuous reduction of “ant moving”.
On April 13th, Zhongman Petroleum’s shareholder Shenchuang Investment announced that it intends to reduce the company’s shares by no more than 10.76 million shares through centralized bidding transactions and block trading methods, ie not exceeding 2.69% of the company’s total share capital; shareholders Beijing Sequoia Xinyuan and Tianjin Sequoia Conglomerate intend to reduce the shareholding of the company by more than 20.94 million shares through centralized bidding transactions, block trades or agreement transfer methods, ie not exceeding 5.23% of the company’s total share capital.
The day before the announcement of this reduction plan, Shenzhen Venture Capital and Sequoia had just completed the previous round of reduction, of which Shenzhen Venture Capital completed a reduction of 0.91%; Beijing Sequoia Xinyuan completed a reduction of 0.6%. Tianjin Hongshan Juye completed a reduction of 0.4%.
On July 25, Panlong Pharmaceutical disclosed the shareholder reduction plan, Suzhou Yongle Jiuding, Tianshu Zhongshan Jiuding and its concerted action plan to reduce 5.2 million shares in the next 6 months, accounting for the company’s total share capital 6%. After this round of reduction, Jiuding Investment will cash out 139 million yuan. In the last round of the recent round of reduction, Jiuding has reduced its holdings by 1%. If Jiuding’s two consecutive rounds of reduction can be completed, it will be able to cash out 165 million yuan.
Golden Field Medicine, which was listed in 2017, has been listed in September 2018. The frequent and large-scale reduction of multiple shareholders has attracted investors’ attention. Among them, Guokai Boyu, Guochuang Kaiyuan, Junrui and Junlian Maolin among the company’s top five tradable shareholders issued a reduction plan. Some shareholders announced the second reduction plan after the expiration of a reduction plan. According to incomplete statistics, in a year or so, these shareholders have reduced their holdings of 9% of the company’s total share capital. At the same time, there are still a number of shareholder reduction plans in progress.
July 100 VCs get together and reduce their holdings by 130 billion in the second half>
Choice data shows that in July 2019, there were 648 reductions in listed companies (about 600 listed companies), including more than 100 venture capital institutions. Well-known funds include Tianjin Dinghuiyuan, a subsidiary of CDH Investment. Bo equity investment, Softbank China’s SBCVC Fund and Jiuding Investment’s Suzhou Xiangsheng Jiuding Venture Capital Center.
According to the estimates of brokerages, the reduction of industrial capital in the second half of 2019 is still not to be underestimated. Referring to the completion of the reduction plan in 2017 and 2018, the actual reduction of industrial capital accounts for about 55% of the upper limit of the plan. Based on this, the market will continue to reduce its holding capacity by more than 130 billion yuan in 2019.
From the reasons for the reduction of disclosures disclosed in the announcement, it mainly includes “funds of fund funders”, “the expiration of the fund’s existence period, and the corresponding arrangements for the withdrawal of various investment projects”.
For the big reduction in 2019, Fu Lichun, research director of Northeast Securities, believes that it is caused by a combination of factors:
One is because in 2018, especially since the second half of 2018, the risk of equity pledge is relatively large, and many listed companies have very tight capital chains. In addition to listed companies, the capital needs of other major shareholders are very high. Some institutional investors have a heavy financial burden and need to return funds. Therefore, after the stock price surged, they chose to reduce their holdings.
Second, the A-share volume is now very large, and the stock price has been picking up. It provides a reasonable trading volume and attractive price for shareholders to reduce their holdings. Reduction of holdings is no longer a cut of meat, and rallies can be seen as an act of cashing in on investment income.
However, the reduction is not intended to be reduced. Lin Feng, a partner of a VC institution, said to the investment network: “The reduction of holdings is regulated, and the policy of reducing holdings is constantly adjusting. The policy has a greater impact on investment institutions.”
In early March 2018, the China Securities Regulatory Commission promulgated the “Special Provisions on Shareholders’ Reduction of Shares by Listed Companies’ Venture Capital Funds” (referred to as “Special Provisions”), which differentiated the investment period of venture capital funds and formed the investment period and the pre-start shares. The mechanism for reversed the time interval of the reduction period: for the period of investment before the company IPO is less than 36 months, according to the current reduction rules; if the investment period is 36 months but less than 48 months, the current regulations will reduce the proportion ( The time limit for the reduction of 1% of the centralized bidding transactions and 2% of the bulk trading is shortened from any consecutive 90 days to 60 days; if the investment period is more than 48 months, it will be shortened to 30 days from any consecutive 90 days.
In Lin Feng’s view, investment institutions are originally “profit-seeking drivers”. They are very normal to make money from listed companies. After the lifting of the ban, they will sell away. However, the reasonable exit of the organization can guarantee the capital market. Stable order. “If it is a large reduction or even clearance of industrial capital, it will cause concern. Because industrial capital tends to sniff the industry more often, their large-scale withdrawal may declare an industry in the direction.’decline’.
There are rumors that under the stagnation of this reduction, many venture capital institutions have even set up a special “reduction department”. However, the China Investment Network has asked several institutions for verification. The other party said that “the ‘holding department’ has not been established.”
Investors explained to the China Investment Network that “first, the number of institutions with a large number of listed companies is not in the majority, and the establishment of the ‘reduction department’ will not be a common phenomenon; secondly, the institutions are making money, the stock price is too It is generally not possible to reduce the holdings of losing money, and to reduce the holdings or to find the right time.”
Reduce is not equal to monetization
Investing in the network also found that in the tide of reduction, not every institution is eager to reduce.
“With such an urgent reduction, the money will not be able to get more LPs, and it is impossible to reduce the money and get back to invest.” When inquiring about the “reduction department”, investors have voted ChinaNet is a comment.
In fact, because the valuation is upside down, there are not a few VC/PEs that are “locked in”. What’s more, because the primary market is difficult to raise funds, there is also an embarrassing “lack of money reduction.”
Li Hao told such a story. “In 2016, my institution repurchased all the fund shares of LP in a single project equity investment fund because of the confidence in the project. At that time, the boss thought that if everything went well, after a few years, you can earn one by reducing the holdings. Big, because it is an investment in its own fund, it doesn’t need to be ‘turned in’ to LP like most GPs.” However, in 2018, Li Hao’s organization will sell all the shares back. “Because of the lack of money. In fact, this clearance did not make much money, it must be done.”
This kind of helplessness casts a layer of “tragic color” on the original “profit-based” reduction. “Therefore, the so-called “unprecedented reduction in 2019” is difficult for the organization to comment on in absolute terms.” He told the investment network.
The capital market has always been this way. Li Hao, who has been in the business for nine years, thought about it. “After all, there is no complete right or wrong here, only a clear win or lose.”
(At the request of the respondent, Lin Feng and Li Hao are both pseudonyms)