The Carlyle Group Takes Position in China Recycling Energy Corp.

Nov.19.07 | About: China Recycling (CREG)

China Recycling Energy Corp (CREG.OB) has landed what may be the most prestigious institutional investor of them all - The Carlyle Group. This is the DC-based private equity outfit that once had George HW Bush on its board. Previous board members of its Asian operations included Fidel Ramos (ex-President of the Philippines) and Thaksin Shinawatra (ex-PM of Thailand). This is top pedigree, bluer-than-blue type of investor; the type that you want.

So this is what's happening: Carlyle, through its 3rd Asian fund (capitalized at $668m) is investing in CREG in three stages:

  • First, a convertible note of $5m convertible into the company's stock at $1.23 per share. This represents a discount of almost 60% to today's closing price of $3.02. It must be said though, CREG's share price has almost doubled in three trading days. I guess the news must have leaked;
  • Second, a sale of shares at the per share price of $1.23, for an aggregate investment of approx. $5m; and
  • Finally, another convertible note of $15m, convertible at a share price tied to its future earnings.

The total investment, assuming all three stages go ahead, is $25m. Previous investments by Carlyle in China included Ctrip, which started as a $8m funding that netted the group $125m on Ctrip's IPO. The 3rd Asian fund has also invested in Anxin Flooring, the #1 wood flooring company in China, and Credit Orienwise, the leading private credit guarantee firm.

The fact that Carlyle took action is a huge stamp of approval for the company's growth prospects and management team. Many Chinese OTC companies have suspect corporate governance and/or financial oversight, but this investment means that Carlyle's due diligence (which would have been intensive) have shown that nothing was out of sorts. Additionally, having such a powerful ally will clearly strengthen and deepen the company's adherence to international-level standards in all financial, managerial and ethical matters.

With that in mind, it is time to accumulate, before the share price goes into the stratosphere.

My Position: None, but looking to buy.