TIANJIN - While small and medium-sized enterprises (SMEs) are experiencing difficulty borrowing money from commercial banks, China Merchants Bank Co Ltd is cooperating with private-equity (PE) companies to help alleviate the problem.

Ma Weihua, president and CEO of China Merchants , said on Friday that the bank is planning to choose 1,000 SMEs in the high-technology sector from its client lists and to recommend them to PE firms.

"We have found 600 candidates with the potential to become listed on the stock market," Ma said.

"For the companies favored by the private-equity firms, we will lend them funds and help them to settle accounts, raise money, and manage risks."

"The Ministry of Science and Technology will also provide assistance in loan-interest subsidiaries," Ma added.

He said that the client resources and financial experience of commercial banks can combine with the investment capabilities of private-equity outfits to help SMEs.

According to Ma, high-technology SMEs with a good business performance would fit perfectly with PE companies because their valuations are low and the investment returns are likely to be high.

He added that in the United States the investment period for high-technology SMEs is between five and seven years, and that Chinese PE companies can learn from them, while commercial banks can provide a series of financial services.

According to Ma, though banks have large financial reserves, they are not allowed to invest directly in the field of private equity because of Chinese regulations, but they can provide wealthy clients with private-equity companies as limited partners.

"We have large clients with more than 10 million yuan ($1.5 million) in assets and we will advise them to consider investing in PE, which is a high-risk and high-return business," Ma said.

In a survey conducted in April by the China Entrepreneurs' Survey System, a research agency set up by the State Council, more than 40 percent of entrepreneurs said a shortage of capital is preventing them from expanding their businesses, and that they are seeking external financing.

Small companies are intent on going public, as 13.5 percent of those surveyed said they will seek a listing within the next three years, an almost 20-fold increase from the 0.7 percent of the past three years.

Gong Jianzhong, the chief executive director of Bank of China Group Investment Ltd, a wholly owned subsidiary of Bank of China Ltd, said that the cooperation potential between commercial banks and private-equity firms is huge.

"According to a Harvard report on commercial banks and PE firms in the United States from 1997 to 2007, 26 percent of private-equity investment has a close relationship with banks," Gong said.

China Daily

(China Daily 06/11/2011 page9)