China Private Equity Investment Holdings Ltd proved poplular with investors on its first day of trading and the shares rose by nearly one-third.
CPE plans to invest in Chinese companies that are likely to float or achieve a trade sale in the medium to long term. Prior to joining Aim, CPE raised $5m ($4.2m net) at $1.80 a share. That valued CPE at $23m. The share price finished the first day’s trading at $2.38. Even so, there appeared to be one trade of 2,500 shares at $2.25 a share - valued at $5,625.
At the end of June 2009, CPE had a net asset value of $19.6m, of which $19.1m was the company’s investment in Fortel Technology Holdings. CPE owns 38% of Fortel, which has developed an integrated online content distribution platform. This platform enables consumers to buy digital content in China. Fortel owns the web portal www.contentchina.com.
Fortel lost HK$3.75m on revenues of HK$18.2m in 2008. Most of those revenues came from the provision of IT consulting services. The valuation of the Fortel stake has not changed since it was acquired.
The share price rise means that CPE is valued at $30.3m, which is well above the pro forma NAV of $22.5m - allowing for the subscription and $800,000 of Aim quotation costs.
Although the Fortel investment dominates the company, CPE does not intend to invest any more than 20% of its assets in any other single investment. The focus will be on telecoms, media, technology and financial services. There is no intention to gear up in order to invest in more companies.
The investment team led by Duncan Chui and Ernest Wong will investigate suitable investments and once they have been identified the investment committee of Patrick Macdougall, Duncan Chui and Hanson Cheah will decide whether to proceed with the investment. Duncan Chui was the founder of Fortel but he was not involved in the decision to buy the stake in Fortel.
CPE has agreed to invest up to $10m in Orbich Group, an angel finance, equity investment and trade finance provider. This deal was agreed in September 2008. Orbich owed CPE $433,000 at the end of June 2009.
CPE has also agreed to invest up to $3m in each of education software provider China School Resources and online travel services provider UCCTV Holdings. These deals were agreed in July 2008.
CPE does not have anywhere near enough cash to invest in all these businesses. In fact, it would be hard pressed to invest $3m in total when running costs are taken into account. The quotation should provide the opportunity to raise more cash.
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