S-Chips

S-Chips: 6 private equity (PE) funds that are in town this week to uncover undervalued stocks have their eyes on S-chips and Singapore companies with an ethnic Chinese mgt.

Among them is Shanghai-based China Best Group, which has drawn up preliminary plans to set up a fund to invest in Spore stocks in a bigger way. It may set up an open-end fund here or undertake a reverse takeover (RTO) of an existing listed company to turn it into a listed fund.
Another private equity fund United Innovation Capital is interested in consumer plays with a strong branding, starting with S-chips and then Spore companies with ethnic Chinese mgrs, which would make for ease of communication. Adds, any invmt should not make up >10% of its portfolio and no more than 5% of the sh/h in the list co.

The two PE funds, while active in mainland China and Hong Kong, are not new to the Singapore market.
United Innovation Capital has invested in Tianjin Pharmaceutical while China Best owns stakes in Yangzijiang, Techcomp, Fuxing and Sound Global, and is a top 10 shareholder at China Sunsine and Sunpower.

They are on a "Discover Singapore" roadshow organised by Financial PR, together with other private equity funds: CDB Capital, Genesis Capital, Yong Rong Asset Management and Harvest Fund.

China Best is on the prowl for companies with strong profitability and cash flows in the last five years, positive industry outlook, and good mgt.
Prefers companies whose key mgt owns > 5 % stakeholding in the company, which tends to align the interest of mgt with that of shareholders.
So far, China Best said it has has yielded an annualised return of 20% for its entire portfolio. Even in the case of the troubled Sino-Environment where alleged fraud occurred, China Best has not lost money and still holds the shares of Avic International Investments after the latter undertook a RTO of Sino-Environment.

The Chinese private equity funds yesterday met representatives from: World Precision Machinery, Dukang Distillers, as well as Singapore's Kian Ann Engineering and Q&M Dental.
They are scheduled to meet China Aviation Oil, Sapphire Corp, Petra Food and StarHub today.