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Chris Chapel

The mainland's vast need for development and working capital makes it a natural focus for Hong Kong-based venture capitalists.

Vincent Chan, director of Jafco Investment (Hong Kong), said he continued to see good demand from mainland companies.

'They are coming to Hong Kong looking for funding and to expand, and also looking for  overseas markets for funding,' he said.

'Many people we come across are looking for capital from a venture capitalist, but they are also looking for a so-called total solution from a service provider in Hong Kong.

'They want an investment bank, access to the stock exchange and access to the overall banking system.

'Our core selling points  to our potential investors in China involve  looking at total solutions. We would like to   create wealth and we also  want to provide solutions  to our investees.'

Venture capitalists in Hong Kong were ideally placed to service this type of demand, Mr Chan said.

Hong Kong provided a natural pool of venture-capital experience and funding for mainland companies, which were increasingly seeking to internationalise.

Mr Chan said mainland companies seeking a listing were drawn to Hong Kong markets both for international exposure and for the added flexibility provided by the Growth Enterprise Market (GEM) and the main board compared with mainland markets.

A major drawing card of Hong Kong stock markets is their relatively  relaxed attitude toward trading founder shares. By selling these founder shares, venture capitalists and other early investors can exit their investment deals, a vital incentive for putting their money into companies in the first place.

Mr Chan said   mainland rules required founder shares to be locked up for up to five years or more,  greatly restricting the ability of an institution's shareholders to reap the benefits of their investments. The lockup period in Hong Kong was far shorter.

'At the end of the day we, as venture capitalists, as investors, have to divest after three, four or five years. For the main board and the GEM board, there is a lockup, but after the moratorium of six to 12 months, the institutional shareholders and the founders can sell their shares,' he said.

'I think that is very important to Hong Kong. Hong Kong is a market that can really deliver this kind of mechanism to our shareholders.'

Another big plus for mainland companies listing in Hong Kong was the ability to issue share options to management and other key staff as non-cash rewards. This option was  greatly appreciated by mainland companies, Mr Chan said.

'That is one of the main selling points for the stock market in the investment world. Because listing is not only about fund-raising. It gives you share options to provide to  employees. It is very important. It helps you retain your permanent management team.'

Mr Chan said mainland companies in which Hong Kong venture capitalists had invested were looking to achieve several objectives with their listings. Raising cash and getting a high price-earnings multiple were desirable, but exposure to international trends was also important. The ability to issue share options was one such benefit.

There was also demand among mainland companies for human resources from Hong Kong.

'We see continued interest from mainland companies coming to Hong Kong to look not only for funding but for talented people,' Mr Chan said.

'Although there is high unemployment in Hong Kong, we see  a lot of demand for honours students and well-trained management teams able to help these mainland companies grow overseas, particularly if they want to penetrate overseas markets.'

Mr Chan said a 'healthy level' of acquisition interest had built up within mainland firms that had  listed outside the mainland.



Mainland companies seek a total solution from HK service providers