Private equity firm Boyu Capital feels pressure of Alibaba IPO delay- report

By Nicel Jane Avellana

Nov 17, 2013 10:15 PM EST

A report from the South China Morning Post said the delay of Alibaba in its initial public offering has put pressure on one of its private equity investors. Boyu Capital, a major backer for the e-commerce giant, has said that it will exit its investment in order to take a profit. According to the report, the delay in the listing of the Chinese firm has also subsequently delayed the private equity firm's own timetable for giving returns to its shareholders. It has also held up the company's plans to get capital for its USD 1.5 billion second fund. The said fund was already said to be experiencing a two-month delay for its fundraising schedule, according to a report in IPO Watch. Executives which include Mary Ma and Louis Cheng established Boyu.

The report also said that Boyu's planned stake sale highlighted the difficulties of private equity companies seeking to exit its investments in the region. Citing data from mainland brokerage firm China First Capital, the report added that 7,500 deals remained "unexited" of the 10,000 transactions on the Chinese private equity market undertaken in the past 12 years. The deals reached a total of USD 230 billion but because of the few available options for exit, an estimated USD 130 billion in venture capital money has been locked up in companies in the mainland.

The report added that the markets in China and India gave lower risk and bigger upsides. However, they are also popular for giving challenges to investors when it comes to exiting the companies through a public listing. Thus, the companies would prefer short term returns if the opportunity presents itself. The report said the private equity investments in China have posted average returns of 10.9% and 12.8% in the past five and ten years, respectively. These returns have led investors to take a short-term investment horizon compared to other markets in the Asian region.

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