PE prof takes sip from winery!

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By Wang Ying (China Daily)
Updated: 2009-06-26 08:15

Anhui Gujing agreed to transfer 40 percent of its outstanding share capital to PE firm Puchuang for 465 million yuan. [CFP]

Who is afraid of Anhui Gujing? Certainly not Shi Zhengfu, popularly known as the Warren Buffett of academia.

The professor of economics at Shanghai's Fudan University is also the partner of a private equity firm which has made headlines in the country's business press by acquiring a substantial stake in the scandal-ridden wine maker that nobody else seemed to want.

Even by the rowdy standards of the mainland corporate arena, Anhui Gujing Group, a medium-sized wine maker in Bozhou in Auhui province, stood out for having its former chairman Wang Xiaojin and more than 10 other senior executives convicted of corruption charges. Wang was sentenced to life imprisonment in February.

The company, owned by the Bozhou city government, was forced to abort three restructuring attempts in the past several months because it couldn't find a buyer bold enough to take up the challenge. In came Shi and his private equity company Shanghai Puchuang Investment.

Anhui Gujing, whose primary asset is a majority stake in Shenzhen listed Anhui Gujing Distillery, surprised the investment community in Shanghai and Shenzhen earlier this week by announcing that it had agreed to "transfer" 40 percent of the company's outstanding share capital to Puchuang for 465 million yuan ($68.05 million).

The proposed transaction will give Puchuang a 24 percent interest in Anhui Gujing Distillery, making it the second largest single shareholder in the listed company.

Puchuang's acquisition, though relatively small in size, has kept many stock analysts and investment experts guessing about what Shi saw in this troubled wine maker that they didn't. Shi couldn't be reached for comment either at Fudan or in his office at Puchuang.

Analysts also noted with special interest that the acquisition was apparently made for the longer-term.

According to Anhui Gujing's statement, Puchuang has agreed to hold its stake for at least five years, during which the buyer must not try to relocate the distiller from the city to another tax jurisdiction or conduct any business that could undermine the brand.

In addition to acquiring the specified stake in Anhui Gujing, Puchuang has also made a commitment to invest 200 million yuan in an Anhui Gujing food processing plant.

Founded on May 12, 2008, Puchuang is co-invested by Shanghai Comway Capital Group, Comway Capital Ltd, Wuhu Dajiang Machinery Investment Center (a machinery investment company based in Anhui province), and Shanghai Fuyuan Biotechnology Ltd, with their respective holding of 50 percent, 6 percent, 40 percent and 4 percent.

Shi Zhengfu, who doubled as Fudan University professor and PE operator, founded Puchang's largest shareholder, Comway Capital Group. The 55-year-old Shi is an Anhui native, whose successful investment previously both came from Anhui-based automakers Chery Auto and Hualing Auto.

Public information from Comway Capital's website shows that between 1999 and 2007, Shi had invested in 14 enterprises other than Chery and Hualing, covering sectors as diverse as biotechnology, software and new material. His investment totaled nearly 3 billion yuan.

An employee with Comway confirmed to China Daily that the company was making a deal with the wine maker. At the moment, both Shi and the investment team involved in the deal were on a business trip, she said without disclosing their destination.

Zhang Yang, director of the investment department at ChinaVenture, a leading Chinese venture capital research and consulting institute, said Shi was a well-known private equity investor and had 10 years of experience in equity management. "Before he makes any major investment decision, Shi will do research for about one year," Zhang said.

"An interesting thing is that Shi's investments are mostly in Anhui province. Either his connections in Anhui or the nostalgia factor comes into play," Zhang added.

Apart from those reasons, as a PE expert, Shi must have sensed that Gujing Distillery had great prospects.

Li Hui, an industry analyst with Southwest Securities, said Gujing Distillery was a promising blue chip in the industry.

"Its performance and reputation is not as good as its counterpart Moutai, but it still enjoys a long tradition and well-established brand name among most Chinese drinkers," Li said.

"Although the global financial crisis has taken its toll on most industries, there is still robust demand in the food and beverage industry. And distilled spirit is one of the most profitable sectors among food and beverages," Li added.

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