This online issue of the Asia Private Equity Review is made available with abbreviated content. To read the full content together with more in-depth news, perspectives, and analysis, please subscribe or contact us to purchase back issues.

September 2006 Issue
In Brief

Hostile Takeover is a Taboo Even in Asia's most developed buyout market Feature
Taiwan Captures Investors' Attention as a swelling pool of capital seeks for distribution Analysis
Asia's 2nd Mezzanine Fund Achieved final closing, exceeding original target Funds
China Affirms Its Central Position in being the single market that attracts largest pool of funds and investment sums in the first half of 2006 Greater China Corner
AIG's 48-month Long Investment in PCCW raises questions as to the value of the telecom company's assets Greater China Corner
China's Oldest Department Store could break the tradition in enlisting foreign private equity investors Greater China- Growth/Expansion
India is the Deal Centre as it leads all other markets in deal total in first half of 2006 India Corner
Alternative Assets Investors have entered India in droves India Corner - Growth/Expansion
Happy Drug for Newbridge As It completes its exit from Matrix India Corner - Divestment
RHJ Globalises Asahi Tec in committing additional capital Japan Corner- Buyout
Content

Pan Asia
News
Funds
Buyouts
Growth/Expansion

Greater China
News
Funds
Buyouts
Island’s Jewels
Growth/Expansion
Eyeing the Vaults
Technology

India Corner
News
Funds
Buyouts
Growth/Expansion
Divestments

Japan Corner
News
Buyouts
Divestments

Summary
Index & Exchange Rates

Waltzing Matilda

On the tarmac of the Sydney’s Kingsford Smith Airport, the footprints of foreign buyout houses have been frequent in recent months. Since the beginning of the year, the smallest continent on the globe, Australia, has become the focal point of heavy weights in the private equity world. In the first two quarters of the year, the Land Down Under has emerged as one of the most-favoured investment destinations for foreign private equity houses. Breaking all past records, Australia saw foreign buyout firms clinching four deals that aggregated to US$3.0 billion. To cement long term relationships in Australia, foreign buyout houses have recently spelled out their codes of conduct, as demonstrated through two recent attempts to take over Coles Myer Ltd (‘Coles Myer’) and Colorado Group Ltd. (‘Colorado’), two of the most established retail institutions in Australia.

The Friendly Overture

In early August, Coles Myer confirmed that it has been approached by financial investors. With a market capitalisation of an approximate A$447 million (US$341 million) at the end of August, a successful move to assume full control of Coles Myer would dwarf all past buyout transaction sum records in Asian private equity. By the end of August, according to market sources, the bidders have consolidated into one single block that is being led by Kohlberg Kravis Roberts & Co. and joined by Apax Partners, Bain Capital, Blackstone Group, CVC Asia Pacific, The Carlyle Group and TPG Newbridge, with Pacific Equity Partners being the only domestic buyout firm in the consortium. Despite the awesome financial prowess of their combined funds pool, which is well in excess of US$30 billion, through carefully managed public relationship campaigns, the financial investors conveyed to Coles Myer that their gesture is friendly. For if private equity investors’ history of hostile takeovers can be used as a yardstick, so far the bidding parties have met their Waterloo, even though Australia is the most developed private equity market in Asia.

The Unfriendly Overtures

Between July and April this year, the Melbourne-based Allco Equity Partners Ltd. (‘AEP’) made two unfriendly takeover attempts for two separate publicly-listed companies and failed. Listed on the Australian Stock Exchange (‘ASX’), AEP raised A$550 million ...

Greater China Corner - Buyouts

Island’s Jewels

Carlyle takes control of EMC shortly after it has disposed of Taiwan Broadband

After six months of negotiations and overcoming regulatory hurdles, The Carlyle Group (‘Carlyle’) has finally received approval from Taiwan’s regulatory bodies to proceed with acquiring Eastern Multimedia Co. (‘EMC’). It is not only the highest price paid for the island’s assets, but also the first secondary buyout transaction in Greater China.

Carlyle had agreed to pay a total consideration of US$1.5 billion to acquire 90% of the issued share capital of EMC, as well as taking up non-controlling positions in affiliates Eastern Broadcasting Company and Eastern Home Shopping & Leisure Company (fig.28) . Of this US$1.5 billion, over US$532 million will be provided through equity, while the remaining sum will be raised as loans granted by a host of banks in Taiwan, including Citigroup Global Markets Asia, Taipei Fubon Commercial Bank Co., Ltd. and ChinaTrust Commercial Bank Co. Ltd. According to market estimates, the price paid by Carlyle represents 9.2 times EMC’s 2005 earnings before income, tax depreciation and amortisation (EBITDA).

EMC is the second largest cable operator by number of subscribers. This is not the first time that it partners with private equity investors. It first received funds from Transpac Capital in 1998, and in November 1999 a consortium of investors, including Capital International and AIDEC, injected NT$270 million (US$82.5 million) in the company.

Since the beginning of the year, Taiwan’s media assets have captured headline news as foreign investors displayed intense interest. In January, Carlyle sold its Taiwan Broadband Communications to Australia’s Macquarie Bank for US$870 million, reaping an envious ten-fold return of invested capital. Before the ink was dry on the disposal agreement of Taiwan Broadband Communications, Carlyle turned around to acquire EMC.

The latest media asset in Taiwan that foreign private equity firms are pursuing is China Network Systems Co., Ltd., a subsidiary of Taiwan Cement Group Companies. According to local sources, the direct investment arm of Goldman Sachs is offering some US$1.2 billion to US$1.3 billion to take control of China Network Systems. Both Newbridge Capital and Carlyle are in this race to enlist China Network Systems in their portfolios. Given foreign investors’ intense interest, the market believes a new valuation benchmark will be set in the sale of China Network Systems to foreign private equity hands.

Greater China- Growth/Expansion

Eyeing the Vaults

There has been no shortage of foreign investors wanting to be enlisted as shareholders in Chinese Banks

The spectacular debut of Bank of China has investors spell-bound. There has been no respite in the list of foreign investors seeking to acquire a parcel of Chinese banks’ assets.

The International Finance Corp., which has long invested in China’s banks, has recently added United Rural Cooperative Bank of Hangzhou to its China bank portfolio. The private sector investment arm of the World Bank joined Rabobank Bank in taking up a combined 15% equity stake in the rural co-operative bank. It is also the first time that such kind of lender in China has received capital injections from foreign organisations.

Banks in Hangzhou are receiving keen attention from foreign institutions. The Asian Development Bank was known to be planning to take up no more than 5% in Hangzhou City Commercial Bank for an undisclosed sum. The deal is waiting for the approval of China Banking Regulatory Commission. To Hangzhou City Commercial Bank, the commitment from Asian Development Bank, when completed, would be the second from investors abroad. In April last year, the Commonwealth Bank of Australia took up a 19.9% stake in the bank in agreeing to commit 625 million yuan (US$78 million).

The latest to is joining the queue to acquire assets of Chinese banks is the Singapore-based Pangaea Capital Management. It is looking to take up a 5% equity position in Huishang Bank Co.. Pangaea Capital Management’s move came on the heels of a recent proposal made by the Lion City’s DBS Bank to take up a 20% equity stake in Huishang Bank.

This will be the second attempt by Pangaea Capital Management to take up a stake in a Chinese bank. Last year, it committed to deploy over one billion yuan (US$123.4 million) in purchasing 289 million non-tradable shares from Huaxi Bank. The deal failed to receive approval from the regulators.