Report: More Chinese securities firms permitted PE investments

The China Securities Regulatory Commission (CSRC) has permitted Huatai Securities and Guosen Securities to invest in private equity, according to Chinese magazine Caijing. They are among seven firms that had applied for approval to invest directly in unlisted companies.

Earlier in the year, CSRC laid out certain conditions for securities firms wanting invest in direct private equity.

It said that firms must have a minimum of RMB2 billion ($292 million; €187 million) in net capital; they must have at least three years of experience in underwriting equity securities; 10 years of experience in underwriting bond securities; RMB15 billion in transactions over the last year; and a sound internal control and risk management system.

Prior to drafting the legislation, the CSRC last year launched a pilot programme under which two securities firms, CITIC Securities and China International Capital Corporation, were allowed to launch direct investment activities in unlisted companies.

According to the legislation, the securities firms can only invest up to 15 percent of their net worth in direct private equity, and they can only make investments through a subsidiary that operates as a separate company.

Separately, China’s State Council also approved another batch of government-backed private equity funds. These include the Huayu Water Services Fund, the Northeastern Equipment Fund, the Tianjin Shipping Fund and the City Infrastructure Investment Fund. According to Caijing, each of these funds manages more than RMB10 billion.

However, the magazine also reported that the regulators will not approve any more such funds until the government can implement new guidelines that clarify rules and standards. It said that the new guidelines will facilitate quicker reviews to replace the currently lengthy approval process.