15 November 2016
Hony Capital emphasizes its global ambitions
Hony Capital has reiterated its commitment to helping Chinese companies go global, in addition to supporting international firms that want to maximize their exposure to China – and the firm established a presence in Shenzhen to address these opportunities.
"We have three convictions. One is Chinese companies will be truly globalized, becoming important players in the world," Hony Capital Chairman and CEO John Zhao (pictured) stated in the company's Annual General Meeting in Shenzhen. "We have chosen Qianhai [a special economic zone in Shenzhen] as our global operaZtional headquarters because we believe in Renminbi internalization and China's capital markets opening up - and that will happen first in Qianhai."
Hony's latest fund - Hony Capital Fund VIII - has a main corpus of $3 billion, according to sources familiar with the situation. The main corpus was intended to be split equally between US dollar and Renminbi-denominated tranches - thereby ensuring fewer potential conflicts of interest - by leveraging liberalized policies announced in Qianhai and the Shanghai Free Trade Zone.
Over the last two years, the private equity firm has supported Shanghai Jinjiang International in its acquisitions of European hotel group Louvre Hotels, Chinese budget hotel operator 7 Days Group, and Vienna Hotels Group. The GP has also assisted fiberglass company China Jushi Group in building sales networks and factories overseas, and played a role in China-based ENN Ecological's investment in Australia-listed oil and gas supplier Santos.
Zhao's second conviction is the emergence of Chinese digital economy, which affects every industry and every person, and thereby poses a challenge to PE investors. “There are a lot of uncertainties ahead. Much of your experience or the lessons learned before might not be relevant to tomorrow's world,” Zhao said. "Hony used to invest in growth and buyout deals, not innovative technologies. However, this is clearly the emerging trend and we should adapt ourselves to the new environment."
He cited WeWork, a US-based provider of collaborative workspaces for start-ups, as an example. Legend Holdings and Hony led a Series F round worth $430 million in March, with a view to helping the company expand into China. The company is targeting five locations by the end of this year and another ten for 2017 in Beijing, Shanghai and Hong Kong. WeWork is also looking to collaborate with Jinjiang International on a new accommodation-sharing service called WeHotel.
The third belief is that the Chinese government will deepen its economic reforms in a bid to reduce uncertainties and systemic risk. While noting there have been fewer new policies than in previous years, Zhao said he expects the economy to become increasingly legalized and market-oriented, potentially giving GPs greater scope to add value to portfolio companies.
As for industries of interest, Hony have accelerated its investment pace in restaurant chains and media assets. The GP created two sector-focused operational teams - in healthcare and restaurants - in 2014 to support consolidation efforts. The restaurant platform has since invested in Hehegu Catering Serivice, Xiao-Mian Restaurant and Xishaoye Corporation. Two months ago, Hony also invested HK$1.5 billion ($193 million) in Hong Kong-listed Lee & Man Handbags, which is intended to serve as a shell company for all the restaurant assets.