Gordon’s Guide to Investing in China

We are privileged to feature Gordon Crosbie-Walsh, the new Head of Capital Markets at Webb Capital in Australia. He’s gone home to his native country having recently spent some fourteen years in Hong Kong as the Head of Equities for Deutsche Bank, Hong Kong, as well as a Senior Director at Salomon Smith Barney, and as a Senior Research analyst for both Schroder Securities and Nomura Research.

Revving his engines, Gordon is preparing to go full throttle ahead to capture co-investment opportunities between Australia and Asia, more specifically China.

Although it may sound like an incredible feat, Gordon is fully geared up with his extensive experience at renowned investment banks, his fluent Cantonese and his talented team.

KTY: Welcome Gordon,

Congratulations on your exciting, new mandate.

Your peers recognize you as a leader in the traditional financial markets, and you are now off to explore mainland China for co-investment opportunities.

Do you feel like the American pioneers who headed West in search of gold when you are foraying into the quickly expanding Chinese market?

Gordon: China is very different from 15 years ago. The capital market is much more developed than it once was. But, big changes are still happening and it’s all very exciting with many companies looking to connect with others.

With the WTO opening the Chinese market, foreigners are investing and partnering with Chinese start-ups for the first time and even more than ever. And, the timing is great with China’s economy being so strong right now and with so much of their economy drawn by raw materials.

It’s all forcing Chinese companies - in a positive way -to secure long term supply agreements and partnerships with outsiders. It’s not rare to see Chinese companies interested in Australia’s coal mines and properties. They are looking globally elsewhere, too.

KTY: Which sectors are you looking at for investment purposes in China?

Gordon: There are opportunities in all the sectors and things are changing fast.

Banks have suffered in China the last five years, but then the recent IPO of banks, such as, Industrial and Commercial Bank of China has been hugely successful. This is a big, promising turnaround for the sector.

There are also non banking opportunities.

KTY: Such as…

Gordon: Well, for one there is the leasing market. It’s immature but growing fast. Much to do there!

Then there is the consumer sector. Sure, it suffered of late…but the sector still offered opportunities in the past and will do so more in the future. There will be a focus on key brand names.

There’s also the gaming sector. Official gaming in certain areas is regulated by the government with humongous opportunities abound. It is still in its infancy with room to grow.

There are so many sectors to explore and much research to be done to get down to which companies do what. That’s why capital markets groups like ours offer a valuable service to investors and potential partners shifting through the mine field of opportunities.

KTY: What types of companies are exciting to look at in China?

Gordon: Generally speaking, non-banking financial institutions are doing well now and looking to leverage their balance sheets. One in particular is exploring a fund that would leverage them 10 times offering them a huge growth opportunity.

Other opportunities exist in online multimedia companies. There’s one we’re looking at that offers a unique experience. They are coming from a marketing perspective rather than a purely technological one. They’re similar to Hello Kitty. To be announced later…visit our site to keep posted.

KTY: Given your professional experience in Asia, directly and through your days as a research and sales executive with investors in Europe and North America, what key differences stick out in investment practices?

Gordon: The stark differences can be seen in two ways. The first being investment styles and the second being the opportunities. Let me explain:

From an investment perspective, China is quick to market. The US players having a longer history and a more established, mature outlook are slower to act. Europe is similar to the US with their checks and balances and due diligence activities, but their players are still quicker than their US counterparts since the Europeans have more experience in Asia.

As for opportunities, they are highly significant and vast in China as compared to the number of opportunities elsewhere right now.

KTY: How is the Webb Capital team best suited to take on the Chinese market and its challenges?

Gordon: The capital markets group is a new division of Webb group, and we are building a strong team.

Unlike the bigger investment banks (and I come from a couple of them!), at Webb, we have a strong team on the ground in Asia and Australia. I fly around in Asia frequently, and am 65 percent here and 35 percent there.

We are very Asia-focused with an all Asian team including a member from mainland China, another who is Australian-Chinese who has spent much time in China, and someone from mainland China in Hong Kong. All of them are joining the team with a very good understanding of the region and connections with mainland China.

KTY: How do you go about finding those “diamond in the rough” deals and what would make your job easier to discover them?

Gordon: Language helps. I speak fluent Cantonese and the team all speak Mandarin. And, we have extensive prior experience in the area.

We also have partners with whom we connect from time to time when looking at specific projects in China. We work with industry experts in areas of non expertise for us, as well.

It’s actually relatively easy to find the deals. So far the market has been robust, and we’ve been lucky with with work. Here’s an example of some exciting opportunities.

We’re working with an aviation company from the US looking to China for partnerships. Aviation leasing is in infancy in China. The aviation budget in China is a huge boulder waiting to be picked up. The company involved seeks private equity and venture capital funding, and will probably be listed in the next couple of years. It’s a huge growth opportunity,

KTY: And when you have found these promising companies, how do you protect your interests in a relatively foreign land and in an area undergoing rapid business evolutions?

Gordon: Similar to professional firms, we sign official engagements to seek out investors and opportunities for our clients.

We usually represent one side (“client”) but also occasionally represent both parties.

KTY: What would you recommend that promising Chinese companies do to catch your eye?

Gordon: The Chinese companies we meet tend to be true gems and will do well, but through no fault of their own, they need to build better and stronger:

• business plans
• financials
• management teams
• corporate governance type infrastructures

The market has been opening up and growing so quickly, and it’s all new to many of them. They are doing their best to keep up and to provide the information and infrastructure that outside investors are used to reviewing. It’s all part of the fast growing pains. They’re learning quickly.

KTY: How do you make sure that the jewels presented before you are not actually fool’s gold?

Gordon: We don’t accept all clients that come to us partly due to insufficient resources to do it all - and - partly due to the fact that we are not always fully convinced that the particular opportunity would succeed.

We go through the regular due diligence work, and speak to our trusted contacts. It helps that our team includes members who are very familiar with the region, the language and culture.

KTY: Are Webb Capital’s investment interests for the long, mid or short term in China?

Gordon: Actually, a combination of the above. It’s a case by case situation. Some are more short term; others are potential M&A cases…

We’re currently working with a client in mainland China – that thanks to the WTO opening up their market – is seeking potential long term equity investments and partnerships outside of China.

At the same time, we have more short term clients needing equity investments to fund them through their early stages.

KTY: What would you say are the secret ingredients that propel companies towards success?

Gordon: The key is to:

• understand the market
• have a great management team
• be able to execute.

If you have all three, a company will do well
If two are missing, you’re up against the wall
If three are missing, the company should not even be started…and there are companies out there like that.

Our job is to recognize the best companies, and get them out to market

KTY: What’s been your most successful case to date?

Gordon: We are looking at a company that’s actually only be in operation for less than a year. We are on the cusp of a transaction to be announced. Keep an eye out for the announcement on our website.

KTY: Sounds exciting. Will do! Okay then, so what was your worst case? And how can other VC’s avoid the same situation?

Gordon: You can experience failures on a daily basis. Little things can go wrong all the time. Sometimes you think that the deal is done and “in the bag” only to find yourself back at the drawing board again through no fault of your own. For example, the promising investor can experience a mishap in an unrelated, totally separate investment and unexpectedly pull away from your deal having becoming risk averse.

Because we are dealing in markets where so many different elements come into play…we must have thick skin. You can not be overly concerned about set backs. It’s a matter of knuckling down and moving forward even if you’ve taken one or two punches. This is true either from a startup, investor or capital market position. You have to believe in your case and move forward.

KTY: Do you have any final advice for other investors considering venturing along with you in China – or - for Asian companies seeking funding and future growth with Webb Capital?

Gordon: Join us!

It’s a terribly exciting time to be in the markets in China as a capital markets advisor or related field.

There is a ton of liquidity floating around and lots of money looking for homes. Opportunities are abound, but be wary because so are the mine fields. There is much to be done in due diligence, finding promising companies, and putting them in front of investors.

KTY: Sounds like exciting times. Thank you for sharing your experiences with us. I am looking forward to seeing Webb Capital’s division evolve under your leadership, and to witness the growth and future success stories of your clients.