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July 2006 Issue
In Brief

Human Capital Drain Plagues Asian private equity even during the industry’s good years Feature
The Harbour Networks/Huawei union unveils the critical importance of adequate qualitative assessment Analysis
Fund of Funds are in Vogue as the oldest family office in Asian private equity launches its first fund Institutional Corner
Stalled Sale of PCCW’s Assets highlights the critical importance of being able to discern the deciding factor behind a deal Greater China Corner
Taiwan Records 1st Secondary Buyout while buyout movements are in the making in mainland China Greater China - Buyouts
Silicon Valley of the East could emerge in China which is attracting consummate venture investors Greater China – Technology
Takeover of Nutrine Foreshadows further buyouts in India India Corner– Buyouts
Sale of MphasiS Further Confirms BPO’s attraction to investors India Corner – Divestment
Asia’s Largest MBO – Skylark – enlists two private equity investors and is in the making in Japan Japan Corner– Buyouts
Sale of Tohato Adds to Unison‘s track record and further evidences buyout as a viable investment model in Japan India Corner – Divestments
Content

Pan Asia
News
Funds
Buyouts
Land of Buyout Promises
Technology
Growth/Expansion
Divestments

Institutional Corner

Greater China
News
A Stirring Market
Buyouts
Growth/Expansion
Sequoia Capital Invests in China’s Insurance Brokerage Company
Technology

India Corner
News
Buyouts
Growth/Expansion
Technology
Divestments

Japan Corner
News
Buyouts
Growth/Expansion
Divestments

Summary
Index & Exchange Rates

The Managers

It is the best of times. Economic growth of China and India are forecast to reach 10.3% and 8% respectively. Private equity in Asia enjoys its third boom year since 2004. In the first half of the year, US$8.79 billion of fresh capital has come into the region, nearly half of the US$19.9 billion recorded for the entire 2005. During the same period, the investment amount committed by private equity investors has reached giddy new heights. The US$18.2 billion transaction totals recorded since January surpassed the aggregate for the 12 months in 2005 by 11.5%. Added to these milestones are the un-interrupted profitable divestments record. In February, ChrysCapital sold its holdings in Gammon India. The sale recorded a 4.75 times return of the original US$20 million invested some 15 months ago. When China GrenTech Corp. was listed on NASDAQ in late March, its private equity investors which include Actis, JAFCO Asia and Standard Chartered Private Equity, clocked an initial return of US$22.5 million for partial sale of their shares. Their residual holdings promise to multiple their original invested capital of US$26 million.

In Search of Greener Pastures

Yet, since the beginning of the year the Asian private equity industry has witnessed senior management movements of a magnitude unprecedented in the past. In January, Mr David Liu, one of the key partners at Morgan Stanley Private Equity Asia left the firm to join Kohlberg, Kravis Robert & Co.. His departure came only half a year after the Wall Street blue chip firm had closed its maiden Asian private equity fund, with Mr Liu being one of the key men for this fund. Within weeks, Mr Gabriel Fong, who has worked closely with Mr Liu, and had been with the firm for eight years, left to join a hedge fund house.

Between April and May, Newbridge Capital recorded the loss of service of two of its longest serving professionals. Mr Au Ngai, who held the responsibilities as managing director and board member of the Shenzhen Development Bank, relinquished his previous duties and chose to act in the capacity of “senior advisor” to the firm. He joined the buyout firm in 1995. Mr Emerson Yip, a director at Newbridge Capital, who has more than 10 years of experience in private equity, has recently joined an asset management firm, where he is responsible for Greater China companies.

The latest is the senior management “resignations en mass” at the Hong Kong office of CVC Asia Pacific. Dr Chris Heine, Messrs Percy King and David Seto were all founding members of the firm when it ...

Buyout

Land of Buyout Promises

Australia has further consolidated its position as the land for mega buyouts

When Kohlberg Kravis Roberts & Co. (‘KKR’) announced that it has clinched the deal to acquire the waste management and industrial services businesses from Brambles Industries (‘Brambles’), it was another confirmation that Australia is fast becoming the land for mega buyouts. KKR has agreed to deploy A$1.83 billion (US$1.35 billion) in taking over Cleanaway and Brambles’ industrial services. It is the largest buyout transaction on record Down Under.

During the past 12 months, Australia’s buyout market witnessed a sharp and constant increase in its buyout deal size. Coincidentally, it was also the time when CHAMP Private Equity announced the final closing of its CHAMP II Funds, which received a record A$950 million.

In August last year, Affinity Equity Partners committed A$258.40 million in acquiring Loscom from DB Capital Partners. The size of this transaction was soon overshadowed by CCMP Capital Asia’s A$1.2 billion pledge to the South Africa-based scaffolding company, Waco International, which has substantial operations in Australia. But by the end of the first quarter this year, Newbridge Capital, together with its parent affiliate, Texas Pacific Group, set a new benchmark for the Australian buyout market when the private equity investors agreed to an A$1.4 billion transaction to take over Myer’s department stores as well as its two properties in Melbourne. Before the market adjusted to the increasingly large deal size that has began to dominate the Australian market, KKR took the crown in sealing the largest buyout deal Down Under.

Despite being the world’s 18th largest economy, with a gross domestic product of US$637.3 billion that trails behind both Japan and South Korea, which have been dominating Asia’s buyout scene, Australia has emerged as the land for buyout investors. In the first six months of the year, buyout transactions consummated Down Under amounted to over US$3.44 billion, far exceeding other markets such as Japan and South Korea, which recorded US$1.81 billion and US$76 million respectively.

Greater China News

A Stirring Market

After a year-long government ban on initial public offerings (‘IPOs’), China CAMC Engineering (‘CAMC’), a state-owned engineering company, became the first IPO candidate. It made its debut on the Shenzhen Stock Exchange on 19th June. The market responded enthusiastically to CAMC’s listing. Its share price soared by 3.32 times to close at 31.97 yuan (US$3.98). China’s first IPO in a year testifies to the fact that domestic investors are ready to direct capital to its stock market, after a market slump of more than four years.

Although CAMC’s first day of outstanding trade performance has led local regulators to launch a probe, domestic investors appeared to be unperturbed. Shenzhen Co-ship Electronics Co. Ltd., backed by local venture capital firms Shenzhen Capital Group Ltd. and Shenzhen Hi-Tech Investment Service Co. Ltd., became the second company to make a debut. Its share price closed at 35.63 yuan on its first day of trading, representing a rise of 122.69% to its offer price.

However, it is the landmark A-share offering of Bank of China that further affirmed domestic investors’ appetite to stocks. The bank, which raised over US$11.9 billion in June on the Hong Kong Stock Exchange, made it’s A-share offer on the Shanghai Stock Exchange on 5th July at an offer price of 3.08 yuan each. On its first day of trading in the domestic market, Bank of China’s shares jumped 31% and touched a high of 4.03 yuan, or 50% above its offer price, before it closed at 3.79 yuan. Bank of China’s historical listing underscored domestic investors’ feverish interest in public equities.

Greater China- Growth/Expansion

Sequoia Capital Invests in China’s Insurance Brokerage Company

Sequoia Capital, through its China fund, has invested in China Zhonghe, an insurance brokerage company with US$10 million.

China Zhonghe is the parent company of six insurance intermediaries, including Beijing Lianzhong Co. The latter was established by a former information technology manager at Ping An Insurance, Mr Chen Yong who founded the company in December 2003. Beijing Lianzhong boasts an insurance income of 120 million yuan (US$14.6 million), taking the title as number one in the Beijing insurance intermediary industry in 2005.

Since having received its licence in 2004, China Zhonghe has expanded rapidly, into Shanghai, Guangzhou, Chongqing, Wuhan and Taiyuan. By the end of this year, China Zhonghe is expected to further expand its network to cover more 20 cities. It is also seeking a “national” license in order to expand its operation across the nation.

This is the second non-technology company in which Sequoia Capital China has invested. Earlier, it committed to the Shenzhen-based vegetable distributor, China Linong International Ltd..