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.
April 2007 Issue
In BriefDeal Path Is Getting Rugged as evidenced by recent events. Is Asian private equity reaching a level of maturity or the bubble is about to burst? Feature
A Milestone in Asian FoFs as independent firms receive the backing of institutional investors Analysis
Colourful Deal Market in Oz as some score while others wait for deals Buyouts
Oiltools Turns to Private Equity again after an absence of three years Growth/Expansion
Staunch Investors of BPO company in the Philippines book huge returns Divestment
“A” Shares in China Being Pursued as Zhuhai Zhongfu received funds Growth/Expansion
Intime’s Debut Logs Another profitable exit for its investors Divestment
Buyout of a Shipyard in India marks a milestone in Indian private equity India Corner - Buyouts
Investors Count Cash Realised in a number of exits India Corner – Growth/Expansion
eAccess’ Launch of Its VC Fund is a reversal of its previous role India Corner – Divestment
Meiko Shokai is the Latest to employ private equity capital for its privatisation process Japan Corner - Buyouts
A Credit Co.’s Book Closes after a brief 15 months. The exit of Sanyo Electric Credit Japan Corner - Divestment
Content
Analysis
Pan Asia
News
Funds
Buyouts
Growth/Expansion
Divestment
Greater China
News
Regulators Give Green Light to Takeover of China Network Systems
Beijing Moves to Promote Venture Capital
Al Salam Bank to Seek Opportunities in China
Voices of EMC’s Minority Shareholders Heard
Funds
Buyouts
Growth/Expansion
Venture Capital
Divestments
India Corner
News
Funds
Buyouts
Growth/Expansion
Venture Capital
Divestments
Japan Corner
News
Funds
Buyouts
Divestments
People on the Move
Summary
Market Watch
Index & Exchange Rates
Check Points
When The Blackstone Group (‘Blackstone’) announced its intention to become a public company, no questions arose about the wisdom of this decision by this blue chip private equity firm. Blackstone’s unblemished investment track record leaves even the most inquisitive analysts with no basis for such questions. Instead, there has been much attention focused on interpreting the meaning behind Blackstone’s unorthodox move in an industry that worships privacy. Described as an “expert’ in timing events, Mr Stephen Schwarzman’s move to change the firm that he co-founded into listed stock has fuelled the theory that “market conditions (for private equity ) are worsening”, a 19th March Wall Street Journal article asserted. The New York Times echoed this conjecture and believed that Mr Schwarzman reckoned the “buyout market has peaked”. Whatever may be the reasons behind Blackstone’s decision to pioneer this listing trail for private equity fund management firms, for the past three quarters, telling events suggested that the Asian private equity is entering into a new phase of development, and the honeymoon period is now history.
The Evolution
When the concept of buyouts was first introduced to Asia at the end of the last decade, the region was an ideal hunting ground for buyout investors. This was the period following the 1997-1998 Asian Financial Crisis (‘Crisis’), which left behind a repository of companies waiting for restructuring specialists armed with capital. The economic wounds caused by the Crisis had significantly depleted the region’s financial strength. This, coupled with the fact that Japan was deep in its economic lethargy and that China was not yet prepared to assume a key role on the global stage, presented an unprecedented and favourable environment for buyout investors. The dynamics began to change at the beginning of 2004, when Shinsei Bank made its debut on the Tokyo Stock Exchange after a period of restructuring. This was a confirmation of the merits of private equity, as well as of the eventual monetary returns that financial sponsors could rake in through this process. Ironically, buyout investors’ phenomenal success also caught the attention of the vigilant eye of regulators. In 2005, South Korea and...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.
Greater China Corner - NewsRegulators Give Green Light to Takeover of China Network Systems
After undergoing intensive questioning, MBK Partners was given the green light for its takeover of China Network Systems, the largest cable TV operator in Taiwan. Earlier, the National Communications Commission had listed 31 questions for the buyout firm, an unprecedented incident in Taiwan’s corporate takeover history. According to Economic Daily of Taiwan, one of the questions posted to MBK Partners was what would be its future strategy in the event of failing to be able to sell China Network Systems at the end of a five-year holding period. The regulators’ intense scrutiny of MBK Partners’ 60% stake in China Network Systems followed the island’s Ministry of Finance decision to implement rigorous review procedures on takeovers of local assets. China Network Systems has become one of the earliest litmus tests.
Beijing Moves to Promote Venture Capital
China’s State Administration of Taxation published new rules on 15th March that provides new guidelines governing tax incentives for venture capital investors in the country. It is designed to encourage research and development that would lead to scientific innovation, as well as the growth of technology-intensive startups.A circular numbered (2007)31, entitled “Notice on the Tax Policies Concerning Venture Capital Investment Firms’’, stated that venture capital firms with investment in qualified technology companies are exempt from paying tax that could be as much as 70 % of their invested capital into these portfolio companies. In the event that such tax credit exceeds the otherwise payable tax for the venture capital firm, the outstanding amount could be carried over to the following year, according to this new set of rules.
For example, a venture capital firm that has a tax liability of US$700,000 for a specific year, it is not required to pay anything if it has made investments in qualified technology start-ups that amount to US$1 million. If the venture capital firm has only US$500,000 tax payable, US$200,000 worth of tax credit can be carried over to the following year.
The ground-breaking rules, however, stipulate that venture capital firms will qualify for such tax benefits only when the investment holding period of unlisted technology companies exceed two years or more. In addition, such preferential tax privileges are only applicable to unlisted technology companies with annual sales of no more than 200 million yuan (US$25.9 million), with 5% of the revenues being plowed into research and development.
The rules took effect immediately, and venture capital investments made after 1st January 2006 are eligible for such tax benefits.
Venture capital investment in China has re-defined the Asian direct equity landscape. Since late 2003 when Ctrip.com, in which by The Carlyle Group had invested, made its debut on NASDAQ, a string of successful venture capital investments followed. SAIF Partners rose to stardom following the listing of Shanda Interactive Entertainment Ltd. and Baidu.com became a legend in venture capital investment in China. The long list of successful investments in China has been the impetus behind China’s latest move in this tax incentive.
Al Salam Bank to Seek Opportunities in China
The Bahrain-based Al Salam Bank is the latest financial institution that has decided to enter the China market. It has signed a strategic partnership agreement with CMIA Capital Partners, which has operations in both Singapore and Shanghai.CMIA Capital Partners is a China-focused private equity firm established in 2003. It has primarily focused on development capital opportunities in mid-sized companies in China. Its diversified portfolio includes China Minzhong Organic Food Corp., a market leader in the processed vegetable business, Chongqing Haifu Technology, an internationally recognised market leader in cancer treatment technology, as well as a waste management company Sino-Environment Technology.
Investors from the Middle East have shown keen interest to China. Earlier in the year, the Kuwait-based Kuwait Investment Authority as well as National Investments Co. K.S.C. sponsored the launch of Jade China Value Partners, L.P., the first fund of funds to have a China focus.
Voices of EMC’s Minority Shareholders Heard
In a development that signals Taiwan’s mergers and acquisitions market has reached a new level of maturity, a domestic court ruled that a uniform transaction price should apply to all shareholders in the sale of Eastern Multimedia Corp. (‘EMC’)’s shares to The Carlyle Group (‘Carlyle’). In the takeover of EMC, the latter facilitated the process by first acquiring shares from a parcel of minority shareholders, paying only NT$26 (US$0.79) for each. EMC then sold all these shares to Carlyle for NT$32.5 apiece.In July last year, when Carlyle was able to take up a 90% equity position in EMC by paying NT$32.5 per share, the shareholders of the remaining 10% portion refused to sell their shares for the lower price, and took the matter to court and won their case. It is the first case in which minority shareholders launched a class action suit over disparity of transaction prices in a transaction undertaken by foreign buyout investors.