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December 2006 Issue
In BriefLeverage Financing Grows as Buyouts prosper, but debt providers are astute Feature
Australia and Taiwan Command investors’ attention and reveal their alluring factors Analysis
Middle East Investors Go High Profile in Asian private equity Buyouts
Australia’s Media Industry Keeps investors alert as deals are being clinched Down Under Buyouts
SE Asia Sees Active Movement as investors scout for opportunities in this region Growth/Expansion
China Announces Its Largest Domestic fund for local enterprises and infrastructure Greater China - Funds
“A” Share Companies are Receiving foreign private equity capital Greater China- Growth/Expansion
HSBC PE Exits from Tong Lung and Solar Energy along with others Greater China- Divestment
Travel industry in India Attracts investors’ dollars India Corner - Investment
Info Edge is Another BPO Success story in India as it went public India Corner - Divestment
Tokio Marine AM Launches Its second fund of fundsJapan Corner - Funds
Advantage Clinches 2 Deals and KKR is vying for a bankJapan Corner - Buyouts
Content
Pan Asia
Institutional
News
Asian Infrastructure Gains Investors’ Growing Interest
Buyouts
Growth/Expansion
Greater China
News
China’s Booming Stock Market
3Com Wins Bid for Huawei-3Com
Warburg Pincus Launches Its Real Estate Activities in China
The Great China Banks
Buyouts
Growth/Expansion
Technology
Divestments
India Corner
News
Investment
Buyouts
Growth/Expansion
Divestments
Japan Corner
News
Commentary
Funds
Buyouts
Divestments
Summary
Index & Exchange Rates
Leverage is Success
Ironically, at the end of a year with a record investment aggregate, fuelled largely by mega buyout deal sizes, a level of unease envelopes the Asian private equity industry. In the first 11 months of 2006, the industry registered a towering US$43.7 billion in transaction total. It is a staggering 148% increase, compared to US$17.6 billion for the entire 2005. Yet, with leveraged buyouts increasingly accounting for the lion’s share of the transactions total, there have also been ceaseless warnings about the alarmingly high proportion of debt financing that buyout investors are undertaking. According to a United Nations Conference on Trade and Development report, in 2005 private equity and hedge funds accounted for around US$135 billion worth of global mergers and acquisitions, or about a fifth of the total deals by value. In November, the British Financial Services Authority drew attention to the excessive leverage provided to help private equity funds to acquire companies. Since 1999, when buyouts began to flourish in Asia following the 1997-1998 Asian Financial Crisis, the deal total during the past seven years and eleven months amounts to a towering US$70.3 billion. Of this total, US$14 billion is known to have been realised. It is estimated that for the unrealised US$56.3 billion, buyout investors are currently shouldering US$33.78 billion of debt on behalf of their invested companies. It is a formidable sum, especially at a time when there are prevailing expectations that a global capital markets rationalisation may be imminent.
Leverage Ratios
While the buyout sector has been firmly established as a mainstay in Asian private equity since the beginning of this millennium, it has been an exacting task to pierce the veil that shields each transaction’s debt and equity amounts, in order to gain insight into the impact of leverage financing on the Asian buyout market. For the period between 1999 and November 2006, the recorded data of 46 buyout transactions are known. The notion of leverage financing was an alien concept when buyout.......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.
NewsAsian Infrastructure Gains Investors’ Growing Interest
Infrastructure assets are fast assuming a pronounced profile in Asian asset class as investors are showing keen interest to infrastructure financing. The latest to join the infrastructure investor party is Temasek Holdings, the Singapore government’s investment arm. According to the Singapore Business Times, Temasek Holdings is to launch a listed S$800 million (US$513 million) infrastructure fund. The domestic financial paper further revealed that for the fund’s public offering, Morgan Stanley has been mandated to sell as much as US$150 million of the shares at the fund’s initial public offering.
Temasek Holdings will inject its water and gas assets into the listed investment vehicle. It remains unclear whether this forthcoming infrastructure fund is intended to acquire unlisted or listed assets in infrastructure plays. Nonetheless, the move signals a return of infrastructure funds, which have been largely absent from the Asian private equity scene for a period of 10 years.
Since 1994, when the Washington-based EMP Global Partners (then known as Emerging Markets Partnership) raised the first and then single largest infrastructure fund. The AIG Asian Infrastructure Fund achieved a final closing at US$1.08 billion. Since then, infrastructure funds had established a significant profile on the Asian private equity landscape.
During the past few years, Australia’s Macquarie Bank has become a dominant player. In 2003, it initiated a joint venture infrastructure fund with South Korea’s Shinhan Financial Group. Following its dual public debuts on both the Korea Exchange as well as the London Stock Exchange, the Macquarie Korea Infrastructure Fund (formerly known as Korean Road Infrastructure Fund) has brought its fund pool from an initial 350 billion won (US$294 million) to over US$2.3 billion. It is the largest publicly-listed Asian infrastructure fund for a single market on record.
However, investors from the Middle East could soon be the dominant player in Asia’s unlisted infrastructure assets. The Kuwait government’s Kuwait Finance House is reportedly looking into China and Indonesia, where it intends to invest in energy and commodities.
Greater China- NewsChina’s Booming Stock Market
Following Beijing’s recent efforts to have some of the country’s best companies listed on its own bourses, both the Shanghai and Shenzhen Stock Exchanges have become among the top five most vibrant stock markets on the globe. On 20th November, the Shanghai Composite Index reached new heights to close at 2,017.28, the highest achieved level since July 2001.
Its sister affiliate in the south, the Shenzhen Stock Exchange is also testing its domestic investors’ appetite for technology stocks. In early November, the Zhejiang Netsun Co. Ltd. announced its intention to be listed on the Shenzhen Stock Exchange. It will be the first internet company to test the country’s interest to technology stocks, as well as it ability to raise funds from local investors.
The movement taking place on both Shanghai and Shenzhen Stock Exchanges underscore China’s readiness to tap into the local pool of capital.
3Com Wins Bid for Huawei-3Com
For more than three months, Bain Capital and Silver Lake Partners were linked with Huawei Technologies Ltd. (‘Huawei’)’s attempt to assume full control of its joint venture with 3Com. After a series of counter bids made by both Huawei and 3Com, the latter won in agreeing to commit US$882 million to take up the 49% stake in Huawei-3Com. This outcome has effectively foiled both buyout firms’ rival attempt for this takeover.
Established in March 2003, Huawei-3C is currently 49%-owned by Huawei with the remaining 51% owned by the US-based 3Com. When the joint venture was established, the latter injected 160 million yuan (US$19.5 million) in capital assets into Huawei-3C.
In August this year, 3Com indicated to Huawei its intention to increase its shareholding in Huawei-3C. The transaction price valued the three-year joint venture at US$1.8 billion.
In April this year, Huawei became one of the very first Chinese technology companies that acquired private equity-backed assets when it assumed full control of Harbour Networks. The latter had earlier received financial backings from a host of financial investors, including Warburg Pincus, TVG Capital Partners and Temasek Holdings.
Warburg Pincus Launches Its Real Estate Activities in China
Warburg Pincus has acquired a 20% stake in 7 Days, a budget hotel chain in China through its first real estate fund which has a capital pool of US$1.2 billion. 7 Days’ current focus is in the Southeast China region. It has 17 hotels under operation, with 14 additional hotels under renovation or under lease contract.
Although no transaction sum was disclosed, the move made by the global firm underscores private equity houses’ growing interest in the real estate sector. The Carlyle Group has recently invested US$120 million in buying 110 villas in Zhong Fang Development which is based in Shanghai. It was also the first real estate commitment known to have been undertaken by foreign investors in China.
The Great China Banks
To global investors, China’s burgeoning banking industry is an economic sector not to be missed. Each new day brings a growing list of commitments to Chinese banks by foreign strategic groups.
Within days of Citigroup’s success in assuming control of Guangdong Development Bank, two further investment announcements were made in China’s financial industry.
The Australia & New Zealand Banking Group (‘ANZ’) entered into an agreement with the Shanghai Rural Commercial Bank to pay US$252 million to take up a 19.9% stake in the lender. For the third largest bank in Australia, it is the second deal consummated in China during the past six months. In July this year, ANZ paid US$112 million to take up a 20% stake in Tianjin City Commercial Bank. ANZ’s speedy commitments to China’s banking industry, deploying an aggregate US$362 million during the second half of the year, underscores financial institution’s keen interest to establish a foothold in the China market.
Before ANZ’s celebration party for clinching the deal to take up a stake in the Shanghai Rural Commercial Bank was over, Banco Bilbao Vizcaya Argentaria, S.A. (‘BBVA’) headquartered in Spain, announced its first investment in China’s financial industry. It will deploy close to €1 billion (US$1.28 billion) to take up interests in two of the CITIC Group’s financial operations. BBVA has earmarked €501 million for its 5% stake in China CITIC Bank which is headquartered in Beijing, and another €488 million for CITIC International Financial Holdings. The price paid by BBVA is the highest by all foreign institutions as it represented a 3.3 times to China CITIC Bank’s latest reported book value. Through its maiden investment in China, BBVA’s plan is to develop a retail-and-wholesale bank with CITIC Group.