Attractiveness of the Chinese and Indian LBO markets

Details

Supervisors

Peirce, Robert

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion

Abstract

China and India are the world's two most populated countries, encountering 1.3 and 1.2 billion people, or roughly a third of the planet's population. In addition, they also stand as the second and seventh world's largest economies. After having started the liberalization of their economies in 1978 for China and 1991 for India, the two countries delivered and continue to experience remarkable developments with tremendous growth rates, a fast growing middle-class and massive urbanization flows. Given the low GDP-per-capita, as well as the 400m and 200m people having joined the middle-class since the new century, there is plenty of room for further growth and investments. However, the two countries owe their incredible developments to distinctive drivers. India's economy relies on internal growth with high consumption rates, while the Chinese one bet its expansion on exports. Furthermore, China's corporate environment is dominated by State-Owned Enterprises (SOEs), usually large ones in strategic industries and high restrictions on foreign corporate ownership, whereas the Indian corporate culture is still largely dominated by family-businesses. The huge size of the economies and their young population explain the strong incentive for international investors, attracted by the countries' high returns, to inject billions of dollars. Financing needs were massive in China and in India in order to support the growth pace. Among the major asset classes, capital markets led by publicly-listed equities and tradable bonds have largely dominated the investments, but there is another source of financing, considered as alternative investments that emerged in the region at the beginning of the new century, namely, private equity. And one of the most interesting private equity types, that still emerges in the two countries, is the buyout industry. Although the activity is still considered as immature due to heavy cultural and legal barriers, some recent development and shifting cultures may open the road for a strong development of the activity. This paper highlights the attractiveness of the Indian and Chinese LBO markets.