China-focused funds raise $12 bln in Q2

By George Chen

SHANGHAI (Reuters) - Ten new China-focused private equity funds raised $12 billion (six billion pounds) in the second quarter, but poor market conditions have forced foreign funds to delay exits of their investments through IPOs and secondary offerings, consultant firm Zero2IPO said on Thursday.

The second-quarter figure is up 107.6 percent from the same period of 2007 but down nearly 40 percent from the first quarter of this year, according to the firm's quarterly report.

Some 8.1 percent of capital raised by the 10 funds in the second quarter, or $972 million, target investments in Chinese property markets despite China's tight monetary policy, which may hurt its real estate industry.

Meanwhile, private equity firms invested $2.56 billion in 37 Chinese enterprises, with 63.3 percent of the private equity firms' total quarterly investments in traditional industries, according to Zero2IPO.

In the second quarter, exits of investments led by private equity firms remained stagnant, decreasing 37.5 percent from the first quarter due mainly to the worsening of both global and domestic capitals markets and strict approvals for domestic IPOs, it said.

"We estimate when the stock market begins to see signs of a rebound, there will be more exits especially in the forms of IPO and secondary offers," Zero2IPO analysts said in the report.

The benchmark Shanghai stock index .SSEC has lost more than 50 percent so far from its peak last October, forcing the government to delay the launch of China's Nasdaq-style market for small- and medium-sized enterprises.

Global private equity firms such as Carlyle Group and Warburg Pincus LLC have been rapidly expanding their investments in China to take advantage of the country's double-digit rates of economic growth and to diversify their holdings as the U.S. economy reels from a credit crunch.