SMEs meet investment funds

A staff member at Jiangxi Small and Medium-Sized Enterprises (SME) Service Center (left) consults with a client. SMEs in China find it hard to attract traditional bank loans, forcing them to consider alternative funding sources. CFP

The China Association of Small and Medium-Sized Enterprises (SMEs) is scheduling a series of "speed dating" sessions in 14 cities this year to introduce SMEs to new financing sources.

A pilot event was held in Shiyan, known as China's motor city, in Hubei province, in May.

Another pilot matchmaking event was held in Jilin, the second-largest city in Jilin province, in August.

Contracts of nearly 1.8 billion yuan were signed in Shiyan.

Preliminary agreements for 2.4 billion yuan in investments were reached involving more than 100 SMEs and 20 funds in Jilin.

"The difficulty of SME financing has been highlighted during the economic slowdown. In 2008, more than 700,000 SMEs went bankrupt," said Li Zibin, head of the Chinese Association of SME (CASME).

SMEs must have direct financing channels for further development, Li said.

Li said equity financing can become a major resolution to the problem, given that SMEs usually don't have enough credit or guarantees to obtain bank loans.

"Although the Growth Enterprise Market (GEM) is coming up, the number of permitted companies this year is expected to be at a very low level," he said.

Apart from money, attendees mentioned the advantage of value-added service by tying the knot with funds.

"We've realized money cannot solve long-term problems. Cooperation with private equity would benefit us with well-shaped management and more popularity. And that is different from bank loans," said Li Guangye, vice general manager of Jilin Connell Chemical Industry Co Ltd.

Li Pei, vice general manager of Jilin Haoyu Petrochemical & Power Equipment Manufacturing Co Ltd, said that his company has attracted interest from at least 10 private equity firms. But he said he hesitated to sign any contracts with them.

In 2007, the company became one of six suppliers for the national AP1000 nuclear power project. Jilin Haoyu provides main piping for the country's most advanced nuclear power project .

"We need long-term strategic investors like China Huaneng, other than some private funds which may use us as a springboard. We must pick investors prudently," Li Pei said.

SAIF Partners, a leading private equity firm managing $2.2 billion in direct investment funds, is one of the funds interested in Jilin Haoyu.

Wang Qiule SAIF (Beijing) Advisors Ltd even arranged an on-site visit to Jilin Haoyu after a short conversation with Li Pei.

"A financial crisis is usually a good investment opportunity. As SMEs, only if we devote ourselves to well-defined management and clear operations, will we get the financial support we've been longing for," Li Pei said.

Zhang Yuanda, vice secretary-general of CASME, said the critical problem is with the SMEs themselves.

"Irregular management and an unclear development direction often discourage t banks and funds from supporting them," Zhang said.

In August, Premier Wen Jiabao approved a bill urging central authorities to take more active measures to help SMEs overcome financing difficulties to achieve sound, rapid development.

(China Daily 09/14/2009 page10)