What is the main aim of the SINO-CEEF Holding Company? It is intended as a new platform for business exchanges between China and CEE countries, but what does this mean in reality? SINO-CEEF Holding Company Limited is an innovative platform initiated by China for financial co-operation under the co-operation mechanism between China and Central and Eastern European (CEE) countries.
ICBC took the lead and established the platform. SINO-CEEF, adhering to the principle of “government support, commercial operation and market orientation”, gathers advantages from China and CEE countries, and attracts Chinese and foreign partners to join the platform. It matches global capital with China’s advantages, sets up a platform for industries and capital in the CEE region, and provides integrated financial solutions comprised of “private equity plus investment banking plus commercial banking”.
The CEE countries are featured with stable political and policy environments, have successfully transitioned into market economies and have relatively perfected legal and regulatory frameworks, but currently their cross-border direct investments and capital markets are still at an early stage of development.
According to statistics from Invest Europe (formerly known as the European Private Equity and Venture Capital Association), the scale of private equity and venture capital investments in the CEE region in 2015 was only €1.6bn, and the size of global funds raised for CEE as the main target region was less than €500m. Meanwhile, the scale of initial public offerings in the largest stock exchange in the CEE region in the first quarter of 2015 was €440m, and its average daily turnover of secondary market was €210m; these figures represent 0.2% and 0.1% of its total market capitalisation respectively. They show that the stock exchanges in the CEE region are characterised by limited financing ability and transaction activities. Lack of attention from international equity investors, difficulty of attracting equity capital into enterprises, and lack of interest about industrial investment opportunities are the key issues restricting economic construction in CEE countries. Yet they also represent the potential of deepening co-operation between China and these countries.
Before the establishment of SINO-CEEF, we took into full account the characteristics and development demands of the region. We will treat equity investments as a breakthrough, innovate models of financial services, lead global investors to look at and focus on the CEE market, fully tap market potential, promote commercial exchanges between China and CEE countries, break the bottlenecks of regional development and help to form a virtuous circle of market development and value creation.
The fund attached to Sino-CEEF is estimated to be worth €10bn. Which CEE-based corporates, financial institutions and governments are investing in the fund? And apart from ICBC and through it ICBC Asia, which China-based corporates and financial institutions are keen to/likely to invest in the fund?
SINO-CEEF has launched and established SINO-CEE Fund. The scale of the fund will reach €10bn, and it will help to attract €50bn of credit funds. Since it was launched, we have witnessed high enthusiasm from global investors, and €3bn for the first phase of fundraising has been committed.
We have made frequent trips to CEE countries to carry out roadshows, and communicated with their governments, financial institutions and key enterprises. Our principle of “government support, commercial operation and market orientation” has been widely recognised. All relevant parties expressed willingness to participate in the co-operation, and provide project opportunities and policy support. Among these countries, we have identified institutions from Poland, Czech Republic, Hungary and Latvia that have strong intentions to invest into our fund, and have begun commercial negotiations and implementation of investment details. Other countries have also expressed their willingness to invest, and will study and propose specific investment plans consistent with their national circumstances. The funds from CEE countries are mainly from investment enterprises or banking institutions that are closely related to the governments.
At the same time, we are also actively engaged with other global investors, especially those interested in participating in Sino-CEE co-operation to promote regional co-ordination under the “Belt and Road” Initiative. All investors generally agree with the approach to promote infrastructure construction, investment and other practical co-operation through such financial co-operation, and are in favour of the business philosophy of market orientation, commercial operation, as well as the focus on stable and long-term returns under the condition of controllable risks.
Up to now, a large group of investors have expressed their intention to invest into our fund, such as state-owned and private enterprises in China’s mainland, enterprises from Hong Kong, Macao, and Taiwan, and enterprises and funds from Asia-Pacific and other regions. After we complete the first round of fundraising, we will see other potential investors join in the negotiations in later trenches.
What is the main purpose of the fund? Is it to aid and promote business between China and the CEE nations (trade between the two sides is certainly rising) or is it to act as the Western bookend to the OBOR initiative?
The establishment of SINO-CEEF Holding Company Limited and SINO-CEE Fund is an important financial innovation conducted in Central and Eastern Europe. First, the Fund gives full play to advantages of experience and professionalism, and carries out assessments of investment environment and project design. The fund provides investment advice, development consultancy, feasibility studies and other front-end services in terms of integrated industrial planning, regional overall development, packaging of projects, public-private partnership (PPP) arrangement, privatisation of state-owned assets, etc.
Second, the fund will play a leverage effect, help global capital to participate in industrial investments in CEE countries, take the lead in providing integrated financial services such as equity, loans, bonds, leasing, derivatives, and provide multi-channel funding solutions while ensuring that risks are controllable to the highest degree.
Third, the fund will play the role as a financial and information intermediary. It will match transactions, lead global partners — including Chinese enterprises — to actively expand in the emerging CEE region, stimulate market vitality, improve business efficiency, and create a favorable business environment. Therefore, the establishment of the SINO-CEE Fund is a concrete manifestation of the “Belt and Road” initiative in CEE countries; it is not a “bookend”, but an extension; it represents a positive appeal and an open attitude for co-operation.
What kinds of investments will the fund/holding company make — the aim as I understand it is to focus on developing infrastructure, high-tech firms and mass consumption industries across both regions?
In recent years, as CEE countries have been impacted by the European sovereign debt crisis and other external factors, they have started to seek a wider range of co-operation opportunities to ensure economic growth and social stability. All CEE countries highly welcome Chinese investors, and hope that they can further match with China’s industries and capital.
SINO-CEE Fund targets its business at CEE countries, and appropriately extends it to other European countries and other areas that have interests in line with China and CEE countries. In the context of inter-connectivity and capacity cooperation, and based on our understanding of the CEE market, we will focus on the following investment opportunities.
First, infrastructure construction. CEE countries connect European and Asian markets, and can serve as a hub between those markets. Through the upgrading and inter-connections of transport infrastructures, we can fully unveil potential of the region as a logistics channel on the Eurasian continent.
Second, international co-operation of production capacity. CEE countries are facing the needs to adjust their industrial systems and structures, while China has a large quantity of high quality production capacity and a broad domestic market. China has very strong capabilities in project construction and comprehensive support, so there are broad prospects for production capacity co-operation between the two sides.
Third, industrial investments into advantageous industries. CEE as a region has entered the rank of emerging market. Many of those countries are actively developing export-oriented economies, and enjoy strong advantages in such industries as high-tech, equipment manufacturing and mass consumption, showing characteristics of an incremental market. They are conducive to two-way flows of industries and capital. At present, our investment model has been fully recognised by partners from CEE countries and from around the world.
Will the investments be through equity stakes or debt — or both?
SINO-CEE Fund is a private equity fund set up in accordance with international practice and market-oriented principles. Its investments will be mainly through equity, and supplemented by mezzanine debts and relevant financial tools.
One of the important considerations leading to the establishment of SINO-CEE Fund is to provide equity investment as a complement to existing debt financing, so as to enhance the commercial viability of potential projects and to accelerate the rapid realisation of co-operation opportunities. At the same time, as mentioned earlier, SINO-CEE Fund will also give full play to professional and resource advantages of ICBC as our launcher and of other Chinese and foreign partners, so we can provide integrated financial solutions comprised of “equity investment plus investment banking plus commercial banking”. Equity investment can play a leverage role, and bring more and larger scale of funds to participate in the financial cooperation between China and CEE countries.
Will there be co-operation with the AIIB? And the EBRD?
We welcome partners from around the world and are willing to explore different types of co-operation with all partners. The original intention of establishing SINO-CEE Fund was, and still is, to promote development through co-operation and to promote a broader inter-regional development characterised by mutual benefit and win-win.
The Asia Infrastructure Investment Bank (AIIB) is an intergovernmental multilateral development agency in Asia, focusing mainly on supporting infrastructure construction; The European Bank for Reconstruction and Development (EBRD) aims to support the transition of CEE countries to a market economy, focusing on supporting infrastructure construction and private enterprises in the CEE region. Therefore, on the one hand, we have a common vision with the two institutions in some respects, and we all focus on the world's most dynamic region with large growth potential. We all identify regional development problems and constraints, and propose financial means to provide solutions and inject new impetus. On the other hand, the three institutions are also different in terms of their specific targets, available resources and business models, so they can form a complementary and synergy effect. In general, we have common yet differentiated focus of business, so we can together achieve synergy in our business, and will actively explore innovation and deepening of co-operation models with AIIB, EBRD and other multilateral financial institutions.
In the long run, how important is Central and Eastern Europe to China? How important is China to Central and Eastern Europe?
The mutual importance of China and CEE region is mainly manifested by the mutual co-operation and mutual benefit in the context of globalisation, and by the establishment of a broader cross-regional partnership through the deepening of cooperation between the two sides.
CEE countries share unique geographical advantages and have good resource endowment, and they have always acted as a bridge between China and European countries. In the process of economic globalisation, the co-operation between China and CEE countries has become an integral component of regional co-operation, and it is a key medium in respond to the “Belt and Road” initiative to promote China-EU cooperation.
At the same time, China and CEE countries are strongly complementary, especially in terms of industrial structures, so we have internal drive to promote co-operation and to achieve co-ordinated development. The two sides can match with each other in many fields such as infrastructure, equipment, new energy, new technology and consumption, promote co-operation of international production capacity, extend advantageous industries, boost full-round exchanges of management, technologies and talents, and solve economic, trade and employment problems.
Over the past few years, China and CEE countries have regarded each other as important partners for foreign direct investment and economic co-operation. In terms of trade, China's trade with 16 CEE countries have expanded from $43.9bn in 2010 to $58.7bn in 2016, and grew by 9.5% year-on-year in 2016, accounting for 10.2% of China’s total trade with Europe in the same period. This trend is against the overall trend of global trade. In terms of investment, China’s direct investments into CEE countries have increased from $300m to $1.7bn, and investment areas have also expanded to infrastructure, equipment, new energy, consumption and various other areas.
In the financial sector, Chinese banks have established operations in Poland, Czech Republic, Hungary and other CEE countries; the People’s Bank of China has signed currency swap agreements with central banks in Hungary, Albania, Serbia and other CEE countries to carry out RMB clearing; in addition, China officially joined the EBRD this year. In the future, both sides will have even stronger demands for co-operation based on the needs of regional economic construction and transformation.
Finally, why is this project taking place now?
Globalisation is the basic feature of our present era, and finance is its important component and internal driving force. Under the circumstances of the global resource reallocation and in-depth economic structure adjustment, financial innovation as an “engine” will be a crucial element to accelerate the development of globalisation and deepen regional co-operation.
As mentioned earlier, since the consensus on co-operation between China and CEE countries was reached in 2012, the two sides have made a series of major achievements, but there are still some problems and challenges. Therefore, China proposed an innovative financial services model in the “16+1” Summit held in Suzhou in 2015, which has gained support and responses from the 16 country governments.
Based on this initiative, ICBC embarked on the establishment of SINO-CEEF Holding Company Limited and SINO-CEE Fund. In compliance with EU rules on trade and investment, SINO-CEEF will better help Chinese enterprises and funds to “go abroad”, and will support practical co-operation between China and CEE countries, as well as other Western countries, by integrating strong manufacturing capacity and enormous market potentials with solid financial strength.
The “Belt and Road” Initiative has created a grand picture of co-operation between China and CEE countries, and the “16+1” co-operation mechanism has provided a platform for the multilateral co-operation. SINO-CEE Fund is strongly committed to realising practical co-operation between China and CEE countries.