Reuters – Asian hedge funds, operating in an increasingly crowded market, have begun funding Chinese and Indian companies prior to their IPOs to get an inside track on hot stock listings and boostmedium-term returns.
Hedge funds are becoming a quicker, more convenient alternative to risk-averse banks for Chinese and Indian companies that need capital but are not quite ready for initial public offerings.
“Hedge funds, as a class, have a lot of money looking for a home,” said John Moore, joint head of Asia Pacific equity capital markets for ABN AMRO Rothschild. “Pre-IPO financing is one way for them to go.”
Deal structures vary as the market is still developing and the private nature of these transactions make them hard to track, but investment banks are aggressively pursuing the business as it becomes an increasingly important component of the IPO process.
Foreign and domestic funds bought $605 million of pre-IPO shares in the petroleum unit of India’s Reliance Industries Ltd. (RELI.BO: Quote, Profile, Research) this week, ahead of a listing worth up to $1.3 billion.
Greentown China Holdings, a high-end residential property developer, sold a $130 convertible bond to investors including hedge funds in January, ahead of an IPO that could fetch more than $600 million in the middle of this year.
Hedge fund managers are increasingly comfortable holding on to these longer-term, less liquid assets and moving into a space traditionally filled by banks or private equity firms.
