I. Establishment of the Fund

Approved by the State Council of Chinese government, the Fund was jointly invested by the governments of China and Belgium as well as by the commercial organizations of both nations. In March 2002, the two governments signed the memorandum on the establishment of China-Belgium Direct Equity Investment Fund. The Ministry of Finance of Chinese government, Ministry of Public Enterprises, Communication and Participation of the Belgium government, China’s Haitong Securities and Belgium’s Fortis Bank S.A./N.V. were the founding investors of the Fund. In May 2004, Chinese Premier Wen Jia-Bao graced the signing ceremony of “The Charter of China-Belgium Direct Equity Investment Fund”, held in Brussels, Belgium, on his official state visit to the Kingdom of Belgium.   

II. Overview of the Fund

Registered with the State Administration for Industry and Commerce in Beijing on November 18, 2004. The Fund has a size of 100 million with the fund term of 12 years. The Fund’s investors are as followed:

l   Ministry of Finance (representing Chinese government)
l   Ministry of Public Enterprises Communication and Participation (representing Belgium government)
l   National Council for Social Security Fund of PRC
l   China Development Bank
l   China Banknote Printing and Minting Corporation
l   Haitong Securities
l   Fortis Bank S.A./N.V.
l   State Development & Investment Corporation
l   Guangdong Strong (Group) Co., Ltd. 

Fund manager: Haitong-Fortis Private Equity Fund Management Co., Ltd.
Custodian: Shanghai Pudong Development Bank.

III Investment Strategy

The Fund invests in equity of innovative, growing, small and medium sized companies in China, particularly those companies that aspire to become publicly held companies. The Fund sets no restriction on industry sectors or geographical locations of portfolio companies (except the real estate sector) and does not seek to become the largest shareholder of its portfolio companies. We generally invest RMB 20m-180m in an individual target company, typically taking an equity share between 10% and 49%. The investment horizon in individual companies typically ranges from 3 to 7 years.

IV Investment Criteria

1.      Non-Belgium related projects (with no connection with Belgium in terms of equity holding, equipments or copy rights)

We typically target at companies preferably with net asset value above RMB50m, annual turnover above RMB100m and return on net asset no less than 20 %( 15% for candidates in public utility sector). These criteria are flexible for those companies with promising growth potentials (market share or turnover or net profit has been proved to grow by 20%+ in recent three consecutive years).

2.      Belgium related projects

This type of projects are those Belgium companies established in China, which are entirely or partly held by Belgian, or those companies that are currently, or going to be, provided with equipments or copy rights by Belgium enterprises.

According to the fund management agreement, The Fund invests no less than15% of its total capital in Belgium related projects.

For each of these projects, a minimum investment of EUR500, 000 is set with an internal rate of return (IRR) of no less than 15%.

V Investment Decisions

Manager of the Fund has established its Investment Committee, which makes decisions on individual investments that do not exceed 5 million Euro (or RMB equivalent) in size. For those individual investments that exceed 5 million Euro (or RMB equivalent) in size, investment decisions require approval by the board of the Fund.    

 From initial screening to completing a transaction, a typical investment process takes about three months. This time could be longer than three months if the transaction in question requires the approval of the board of the Fund.

The Fund’s decision making is based on the principles such as rational decision, effective risk control and high efficiency, and our deal execution process consists of initial screening, due diligence and evaluation, transaction negotiation, investment decision, project management and exit.

1.      Screening and Project Initiation

On the basis of preliminary screening and investigation, The Company will conduct an initiation of projects that match The Fund’s criteria in terms of investment value and feasibility.

2.      Due Diligence and Evaluation

For the initiated projects, a project team is formed to undertake due diligence that contains areas such as company background, management team, industry background, core competence, operations, finance, legal issues, business plan of fund expenditure.

The Company sources specialists in various industries for professional consultation according to the need of the project, while employing accountants, lawyers, valuators in the process of due diligence of target projects.

3.      Del Negotiation

The Fund expects to present in the board of the target company in order for the participation in the key decisions during the operations of the target company. And we hope to reach an agreement with the company concerning the liquidation arrangement of the shares of The Fund.

4.      Investment Decision

The Company’s Committee of Investment Decision is responsible for the formation of investment principles, project screening, project management and investment decisions. In case that the amount of an individual investment exceeds EURO 5m, the final decision will be made by the board of The Fund on the basis of the Investment Plan submitted by The Company.

5.      Project Management

When the investment has been completed, The Fund will be participating in the key decisions of the invested company according to periodically collected information on the financial and operational performance, risk alert system of the invested company.

6.      Investment Exit

The Company will be planning and conducting the liquidation strategy based on the industrial status quo, macro-economic environment and the performance of the invested company. Potential exit will be realized through shares selling after IPO, purchase bu other shareholders, MBO and buyback by the invested company.

VI Core Competence of The Fund

1. Promising fund shareholder background

Shareholders of The Fund are generally related to investment or credit financing with sound experience in investment management and strong teams of investment professionals. Shareholders of The Fund will have the possibility to co-invest in or provide with credit support to the portfolio company of The Fund.

2. Preeminent brand name

As the first private equity fund established under market practice in China, The Fund is serving as an example of the Chinese private equity fund industry and one of the most important bilateral co operations between the Chinese government and the Belgium government. The brand name of The Fund is going to significantly promote the public image and market recognition of the portfolio company, as well as to offer vigorous supports in areas such as business expansion, credit financing and IPO service.

3. Professional investment team

The backbone of The Company, an experienced and professional management team, is composed of talents with domestic and overseas backgrounds in finance, technology, investment and management, and valuable experience in capital market, project investment, corporate operations, accounting, auditing and law. The Fund is able to improve the shareholding structure, the corporate governance and the overall management of the portfolio company through active involvements in the management and key decisions by assuring better transparency and standardization.

4. Powerful capital source

With EUPO100m, The Fund enhances the portfolio company’s capability of further financing by improving its capital structure and broadening the source of capital. And The Company is potentially raising further funds according to the growing needs of the market.

5. Advanced investment strategy

A close partnership with invested companies is one of the key factors that boost the win-win situation for both The Fund and portfolio companies. The Fund and The Company will be providing potential assistance to invested companies regarding information on technology, product, market and policies, as well as introduction of equipments, technology and management through governmental cooperation and global market channels. Other assistance, including further financing and IPO, will be achieved based on the concept of resource sharing and co-development.