Interesting post over at the Managing the Dragon blog on the differences between private equity investing in the United States and in China. The post is aptly entitled, “Private Equity with Chinese Characteristics,” and it nicely sets forth how private equity companies like Carlyle, Blackstone and KKR are having to modify their investing methods to conform to Chinese laws and reality:
Beyond the fact that they represent minority stakes, the investments by Blackstone and KKR are very different than those typically made by these firms in the United States and Europe, reflecting their strong desire to find some way to invest in the China market. First off, a few board seats may come with a minority interest, but not the management control which both Blackstone and KKR would insist upon in the United States. Secondly, the investments are unleveraged and are being made with all equity. In the United States, a company’s shares are purchased with a relatively small amount of equity plus a large amount of debt that is based solely on the borrowing power of the company itself. In the United States, buying a company is like buying a house with some savings and a mortgage. In China, it is like buying an apartment with all savings and no mortgage.
Will this work?