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GEB sparks different opinions among institutional investors

By Zhang Jiawei (chinadaily.com.cn)
Updated: 2009-10-22 17:43

Overseas venture capital and private equity firms will all eventually invest in companies listed on China's growth enterprise board (GEB), according to Howard Balloch, founder of The Balloch Group (TGB), an investment bank.

"I think this is simply a step in the maturing of the Chinese capital markets," Balloch, who founded TBG after serving for more than five years as Canada's ambassador to China, told reporters during the 2009 Investment Conference hosted by investment consulting firm ChinaVenture, in Beijing on Oct 21.

China's GEB is in its starting period and it will have a very good future, Balloch said, adding that in five or six years it may grow to be as stable as America's NASDAQ.

Balloch, who saw no immediate impact on China's venture capital firms of introducing the GEB, said he is in support of China's enterprises and start-ups, and the influences of the GEB on these companies will not show immediately.

The first batch of the to-be-listed firms' more than 55 times average high price/earnings (PE) ratios and the high issue prices have drawn many people's attention.

"Maybe that is the first step and gradually we will see the enterprise board become more active and welcome companies earlier in their development, which is what the growth enterprise board eventually should be doing," Balloch said about the high PE ratios for the to-be-launched GEB.

Huang Jingsheng, managing director of Bain Capital, echoed Balloch's idea and said though valuation bubbles have occurred in the short term, the high PE ratio will finally return to a normal level in the long run.

"Many of the firms to be listed on the GEB have got investments from institutional investors," Huang said, adding the firms' governance would be promoted whether the investors are from home or abroad or whether they are venture capital or private equity firms.

Amir Gal-Or, managing partner with Infinity Group, a Chinese-Israeli management group and investment fund, however, preferred to take a cautious approach.

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"I think it's good news for entrepreneurs, private equities and venture capitals but the real question is will it be good for the investors," Gal-Or said.

"When you have a choice to invest in other stock markets that are more mature and stocks of better companies, people tend to not take the risk and go to the more established," Gal-Or said.

Gal-Or, who compared the GEB to a "small child", also said other countries' similar markets provided the GEB with plenty of experience and the "small child" would gradually grow bigger.