londonasia.jpgDespite the much-vaunted opening of China's financial markets to foreign firms, London Asia Capital, the Asia-focussed investment bank, says the going has got much tougher.

So much so, in fact, that LAC has scrapped plans to build a merchant banking business on the mainland, citing increased regulations as the principal reason.

Meanwhile, investors' growing frustration with the Aim-listed company — its share price has halved in just four months — rules out further fund-raising through the markets as LAC's expansion strategy is now effectively paralysed. Reflecting the new reality, LAC has decided to retreat into a fund manager role.

AGM statements are normally noted for the measured tone and upbeat outlook, but there is no disguising the frustration in today's statement (pdf) by Jack Wigglesworth, LAC's chairman. He says:

The restrictions on foreign financial firms investing in Chinese businesses, and also on Chinese companies listing outside China, continue to increase. Indeed there has been a further tightening of the rules announced by the Chinese Government earlier this month. London Asia does not meet the current regulatory requirements for investing directly in Chinese listed stocks, and is excluded by the series of recent regulations from investing directly in most Chinese businesses.”

Clearly, its a bit difficult building up an investment banking business in China if your shareholders won't give you any more money and the regulators throw up hurdles at every turn.

LAC plans to raise funds by realising some of its existing investments in China and to concentrate on running China-focussed funds for others — it runs the AIM-listed London Asia Chinese Private Equity Fund.

Given the significant scaling back of LAC's activities in China, Wigglesworth says it no longer a needs a chief executive and so Simon Littlewood, who held that position, has stepped down from the board, although he will continue to manage the private equity fund.

More on London Asia Capital and some of its investments in these EngagingChina stories.


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