Investor fears price puzzle in China buys

OAKTREE Capital Management LLC, the firm behind China's biggest buyout, is shunning investment in Chinese companies preparing to go public because prices are too high and there isn't enough time to make proper risk assessments.

Some hedge funds stoke demand for pre-initial public offering assets without doing adequate checks on the targets, Bill Kerins, Hong Kong-based managing director said in a recent interview.

"There are so many companies that are trying to price private deals based on what some investment banker is telling them next year's public market price is likely to be," said Kerins. "Now, you're given an extremely limited time to do due diligence."

China has been Asia's biggest market for pre-IPO financing as companies seek funds to boost capital and bolster their accounts before going public. Price expectations from the sellers have gone up after the Shanghai composite stock index gained 95 percent this year. Chinese companies raised US$18 billion from selling first-time shares overseas this year, data compiled by Bloomberg News show. Los Angeles-based Oaktree bought a 0.5-percent stake in Bank of China Ltd, the nation's second-biggest bank, as its first pre-IPO investment in China last year. Oaktree also bought the dry-bulk shipping business from China National Cereals Oils & Foodstuffs Corp, the nation's largest grain trader, for about US$400 million in 2004. That remains the biggest buyout in China.