Dealmakers in China may well find a lot of the action this year in an unlikely place.
If the private equity industry’s instincts are correct, that place will be the publishing and media industry in the Communist nation, where news and content are often censored.
More than a dozen private equity funds, including one backed by
“The logic of the deal is very simple—You invest ahead of its IPO and you believe the media market in China is going to have big potential in the next few years,” said one private equity source close to Hony, which counts the Bill & Melinda Gates Foundation Trust as an investor.
This source and other sources interviewed by Reuters for the story did not want to be named due to the sensitive nature of media-related topics in China.
Also in December, a consortium led by U.S. venture firm
Officials at the General Administration of Press and Publication and the Propaganda Department, two main ministries with powers to regulate China’s media industry, have said Beijing supported some major state-run media firms tapping capital markets for business expansion, according to state media reports.
However, under current Chinese rules, foreign investors are not allowed to invest in domestic mass media companies, making it difficult for many global U.S. dollar-denominated private equity funds to invest in the fast-expanding media industry in China.
On the other hand, yuan-denominated funds are allowed to invest in domestic media companies, providing a new path for foreign investors to tap the sensitive industry indirectly. For example, The
For the first time, the share of yuan funds exceeded that of dollar funds raised in 2009 for private equity firms focused on China, according to the Center for Asia Private Equity Research in Hong Kong.
Deals in the making
Unlike the troubles affecting the media industry in the West, China’s media sector, in particular the financial and entertainment media, is on the rise, partly due to increasing demand from young Chinese readers who are keen to learn about the global economy as well as fashion trends.
An investment fund backed by Gree, a major Chinese air-conditioner maker, recently sponsored more than 50 million yuan ($7.33 million) to help the official Xinhua news agency launch a new weekly magazine, called Economy & Nation.
Some dealmakers also noted private equity funds would be especially interested in media and publishing companies in need of internal restructuring before their IPO plans.
“Restructuring means opportunity to investors,” said a private equity source in Beijing.
“Particularly for a state-owned media company, you can only find a way to improve its management, business and operations via restructuring,” he said.
But the source added that many state media firms operated at low efficiency levels and real shareholding structures were unclear, which often delayed private equity investments.
CITIC Private Equity Fund Management Co., an investment arm of China’s top brokerage CITIC Securities, has been in talks to invest in state-owned China Business Network Co Ltd., a leading financial news provider with TV, radio, newspaper and Internet businesses for a few months, sources familiar with the plan told Reuters. But no deal has been inked yet.
The sources also said some private equity funds are looking at Enjoyoung Media Co. Ltd., which runs a Shanghai-based TV channel whose programs are somewhat similar to well known international broadcaster FashionTV.
CITIC Private Equity, China Business Network and Enjoyoung Media declined to comment on potential investments.
Yu Le of Reuters contributed to this report.
Key facts about China’s media industry
• The size of China’s media industry doubled in the five years to 2008, and was worth an estimated 422 billion yuan ($61.82 billion) in that year.
• Beijing keeps a tight rein over what can be published or broadcast, and frequently punishes editors, journalists or entire newspapers or television stations if they run stories the government does not like.
• 25 Chinese newspapers were included in the World Association of Newspaper’s list of the globe’s 100 largest newspapers. Cankao Xiaoxi, a newspaper mainly publishing translations of foreign news articles and run by the official Xinhua News Agency, ranked fifth in the list with the largest circulation of a Chinese newspaper, at 3.18 million per issue.
• The People’s Daily, the ruling Communist Party’s main mouthpiece, came in ninth place in the world and second in China, with a circulation of 2.81 million per issue.
• China had 9,549 magazine titles by the end of 2008. A total of 310.5 million magazines were issued in 2008.
• Most Chinese provinces, cities and even counties have their own television stations. The total number is believed to be more than 2,000. Some also broadcast in regional languages like Tibetan, Uighur and Mongolian, as well as Mandarin.
Sources: General Administration of Press and Publication of China, Chinese Academy of Social Sciences, World Association of Newspapers. Compiled by Reuters.