Chinese private equity fund to make first investments in Southeast Europe

By bne IntelliNews April 1, 2015

Clare Nuttall in Bucharest -


The China-CEE Investment Cooperation Fund is close to making its first investments in Southeast Europe, after investing in the more established markets of Central Europe during its first year of operation.

The $500mn private equity fund, whose founding investor is China Eximbank, covers 16 countries in the region from Estonia in the north to Albania in the south. However, its four investments so far have been concentrated in the northern part of the region, with three of the four in Poland and one in Hungary.

“That’s been natural because we are based in Warsaw and the majority of our team are Polish, but we do have pressure from our Chinese investors to spread our investments throughout the region, so we are now actively moving outwards,” Bill Fawkner-Corbett, investment director for Central and Eastern Europe at the fund’s investment advisor CEE Equity Partners, told a press conference in Bucharest on March 31.

According to Fawkner-Corbett, the firm is close to making its first SEE investment in Bulgaria, which is likely to be followed by a deal in Serbia. Its first investment in Romania, where it opened its first office in the SEE region, is expected by the end of 2015.

“We are gradually building up a number of offices throughout the region. Given that Romania is the second biggest country after Poland, it was the first to have its own office,” said Rafał Andrzejewski, investment director Poland. “This reflects our confidence we will not make just one or two investments in Romania, but many over the years.” CEE Equity Partners has also opened an office in Budapest, and on April 2 plans to open its fourth in Zagreb.

Despite the plans to step up its activity in SEE, Fawkner-Corbett said in an interview with bne IntelliNews that he expects Poland to remain the primary investment destination, accounting for up to half the fund. Although there is no country allocation, no more than half the fund can be invested in a single country.

Fawkner-Corbett pointed out that risks tend to be higher in SEE, which he acknowledges is “a concern”. Romania and other SEE countries have also suffered from a shortage of equity. “People have tied to find ways around that, one of which has been bank debt. We think by bringing equity into an area where it has been in short supply, we can add a lot of value,” he says. By contrast, the environment in Poland, the Czech Republic and the Baltic states is “much more competitive”.

The fund’s focus is on two areas: infrastructure and specialised manufacturing. In the infrastructure sector, the firm has been looking at opportunities for exposure to roads, railways, ports and airports across the region. Octavian Vidu, investment manager for Romania, told journalists that there are a number of opportunities for investment in various sectors in Romania, citing energy and telecoms, as well as more specific areas such as grain storage, transport and storage of oil and gas, and multi-modal transport.

Renewable energy is another area of interest, which has already been targeted through a joint investment with renewables specialist Enlight Energy into Polish wind farms in 2014. However, Fawkner-Corbett pointed out that regulatory changes affecting several countries including Bulgaria and Romania “tend to put us off to some extent”.

“Regulatory risk prevented us from investing into renewables in Romania. After the sudden changes to the whole gameplan, we made no investments, and we are now looking very carefully at any change in legislation so that we can finally decide whether we will invest or not,” added Vidu.

Despite the large number of companies up for privatisation across SEE, the fund is also unlikely to invest in state-owned enterprises. “We don’t rule privatisations out but they tend not to be at the top of our list. The process is usually slow and uncertain, and typically quite a big operational and cultural turnaround is required,” said Fawkner-Corbett.

The fund is expected to be fully invested within two to three years of its launch in 2014. However, discussions on a second fund with a further investment of $1bn from China Eximbank are currently underway, a potential investment that was announced during the December 2014 China-CEE summit in Belgrade.

In addition to providing its own funds, the Chinese state-owned bank is expected to approach export-import banks from the CEE and SEE region, as well as other Chinese investors.

This reflects China’s growing interest in Southeast and Central Europe, as shown by the approximately $10bn worth of deals signed during the Belgrade summit. According to Fawkner-Corbett, the fund operates on commercial principles, with no direct connection between its investments so far and Chinese interests in the region, although he adds that a Chinese dimension is a “small plus”.

However, Beijing has also shown a wider interest in infrastructure in SEE, in particular due to the region’s potential as a transport corridor between the Greek port of Piraeus, partly managed by China’s Cosco, and the EU member states of central Europe. Aside from the China-CEE Investment Cooperation Fund, China also agreed in December to finance a €1.5bn high-speed line from Belgrade to Budapest, the Albania-Macedonia motorway and several energy projects.

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