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june 2007 Issue
In Brief

Blackstone Sets Precedent with US$3 billion from Beijing just prior to taking the unorthodox move to become a public company. How will these two events define the future of private equity? as independent firms receive the backing of institutional investors Feature
Funds of Funds is the Fastest Growing segment in Asian private equity, suggesting unprecedented institutional interest to the region Institutional Corner
Another Buyout Mould Cast in Singapore where traditional listed companies are targeted Buyouts
KKR Divests its First Investment in Oz but retains the logistics unit Divestments
TPG Newbridge Makes Another arduous attempt to reform Shenzhen Development Bank’s share structure Greater China – News
First Public to Private Buyout in Taiwan in the making as Oaktree pursues control of Fu Sheng Greater China – Buyouts
Proven Success in Consumer Plays as three divestments took place in recent weeks Greater China- Divestments
Buyout of Sharekhan Signals a new era awaits Indian private equity India Corner – Buyouts
Indian Assets in Financing Sector are courted by investors as evidenced by recent US$650 m commitment to HDFC being the largest on record India Corner – Investments
Investors Disembark from Air Deccan but it has been a profitable flight India Corner – Divestments
Taking Control of Japanese Assets is the resolve of Steel Partners as it bids for two additional deals Japan Corner – Buyouts
Buyouts Investor Crafts Different strategy in Japan Japan Corner – Growth/Expansion
Content

Institutional Corner
Charmed by the East

Pan Asia
News
Funds
Buyouts
Divestments

Greater China
News
Renewed Attempts to Reform Shares
Funds
In Vogue: Venture Funds
Investments
Buyouts
Growth/Expansion
Venture Capital
Divestments

India Corner
News
Funds
Buyouts
Growth/Expansion
Venture Capital
Divestments

Japan Corner
News
Tokyo Takes Steps to Become an International Hub
Buyouts
Growth/Expansion
Divestments

People on the Move
Summary
Index & Exchange Rates

The Deal

Since Mr Antony Leung was appointed as the chairman of the Greater China region for The Blackstone Group in January this year, players in the private equity industry have been waiting for the deal that Mr Leung would bring to the private equity institution. Formerly a finance secretary of Hong Kong, Mr Leung is by far the most senior ex-government official in Hong Kong to join a private equity firm. On 20th May, Mr Leung unveiled his maiden deal. It is the US$3 billion commitment by China’s State Investment Company (‘SIC’), an operation that has yet to be established, but is entrusted to manage China’s ballooning foreign exchange reserves which stood at towering US$1.2 trillion by the end of April this year. The entire agreement relates to Blackstone’s much-publicised and expected public listing. The SIC will acquire non-voting common shares, at a price that will be 95.5% of the public offering price in Blackstone’s planned initial public offering (‘IPO’) which is expected to take place in mid June. The offer price is believed to be in the range of US$29 to US$31 each. The number of common shares to be purchased by SIC will be determined by the IPO price, but SIC will not have a shareholding that exceeds 10%. The anchor investor of Blackstone’s IPO has also agreed to hold its investment in Blackstone for at least four years. Ever since Blackstone announced its intention to become a publicly-listed company, which is unorthodox in an industry that operates behind the shield of privacy, this move has been the subject of keen discussions. When Blackstone announced it had secured China as a significant shareholder in its listed vehicle, the private equity industry was enthralled by this achievement. Will these two revolutionary events which are embodied in Blackstone, re-define the future course of private equity? Asia Private Equity Review sought the views of a selected group of limited and general partners that are not only leaders in their defined segment, but also command a profound knowledge ...

Institutional Corner

Charmed by the East

Funds of funds mushroom in Asian private equity

Excitement stirred in the Asian private equity fund management industry when Asia Alternatives Management LLC (‘Asia Alternatives’) announced the final closing of its maiden Asian fund of funds. Asia Alternatives Capital Partners LP greeted the industry with a final size at US$515 million and took the crown as the largest Asia-focused fund of funds. The announcement came only weeks after Axiom Asia Private Capital achieved its closing at US$440 million. Within this short space of time, an additional US$850 million has come into the Asian private equity fund of funds industry that is eagerly courting aspiring fund managers. Significantly, Asia Alternatives Capital Partners is an embodiment of a revised approach of institutional investors to Asian private equity, which has now proven that it is a viable investment model.

The Independent

Similar to many other Asian funds that have recently achieved their final closings during the past year, Asia Alternatives Capital Partners is another illustration of institutional investors’ insatiable appetite for private equity assets in the region. With an original target size of US$350 million, Asia Alternatives Capital Partners’ final closing sum ballooned to US$515 million. It is not only a display of investors’ absolute confidence in the newly-established management team, but also an affirmation that institutional investors are adopting a more pragmatic view in making their allocations to funds seeking opportunities in the East.

It has long been the universal requirement from the institutional investor community that founding partners of a first time fund management team must have had working relationships preceding the launch of their own venture. This caveat did not appear to apply to Asia Alternatives. Its founding partners were engaged in different capacities prior to formation of their own firm. Ms Melissa Ma was a director with Hellman & Friedman, an elite buyout firm based in USA, while Ms Rebecca Xu held responsibilities as a senior investment officer at the International Finance Corp.. The third partner, Ms Laure Wang was a general partner of Pacific Venture Partners headquartered in Taiwan. While Ms Ma is a recent entrant to Asian private equity, over the years her two partners have cultivated an extensive network in Asia, especially in the Greater China region. Perhaps one of Asia Alternatives’ most convincing assets is Ms Xu’s lengthy association with CDH Investments since the latter’s inception years. CDH Investments’ legendary success in China’s alluring private equity market is an endorsement of Asia Alternatives’ ability to identify aspiring fund managers.

In granting Asia Alternatives the mandate as the ideal team to scout for promising fund managers in Asia’s complex private equity landscape, institutional investors placed their vote of confidence in the three founding partners. Their diversified background, in-depth knowledge of Asian private equity, and profound understanding of US institutional investors expectations are powerful combination of factors that convinced investors to loosen their purse strings. It comes as no surprise that two of Asia Alternatives Capital Partners’ limited partners, California Public Employees’ Retirement System and Oak Hill Investment Management, took an unusual move in commenting publicly on their partnership with Asia Alternatives. In an industry that guards investment rationale as a private affair, the highly visible statements coming from these two limited partners is a reflection of their towering level of faith on this latest venture in the Asian fund of funds industry.

Indeed, the list of limited partners in Asia Alternatives Capital Partners is impressive. In addition to the aforesaid limited partners, some of the other institutions that it enlisted included California Institute of Technology, the Pennsylvania State Employees’ Retirement System and the Ontario Municipal Employees Retirement Systems.

Go East

The inscription of “Asia” is now integral to fund management firm’s focus. The Swiss-based Partners Group has proven success with its “Go East” strategy. It is currently raising its second Asian fund of funds. According to Mr Christoph Rubeli, a partner at Partners Group, the size of its second Asian fund of funds is expected to double that of its first one. With the first closing having had taken place back in December, Mr Rubeli displayed confidence that Partners Group’s second Asian fund of fund will achieve its target. In 2004, Partners Group launched its first fund of funds for Asia, and boasted a final closing of US$375 million. Institutional demand is so strong that Partners Group is planning to put together another fund of funds that will focus on Asia and other emerging markets.

Most recently, two additional institutions have also joined the fast growing Asian funds of funds community. JP Morgan Asset Management’s private equity group has decided to add Asia into its operational addresses. One of the largest in the global funds of funds industry, JP Morgan Asset Management has so far largely focused on funds in the West. In deciding to establish a foothold in the East, the institution has recently appointed Mr Eric Chan, formerly a partner at Pantheon Capital’s Hong Kong office, to spearhead its activities in the region. With more than US$40 billion under management, JP Morgan Asset Management’s private equity group is only one of the two heavy weights that are the latest entrants to the Asian private equity arena.

Coinciding with JP Morgan Asset Management’s launch of its Asian private equity operations is ING Insurance, the Dutch insurance giant. After an absence of nearly five years, ING Insurance has decided to re-visit Asian private equity. In a deviation from its past strategy which saw the giant insurer investing direct to or taking up the sponsor role in funds, ING Insurance has chosen a fund of funds strategy. It has appointed Ms Dandan Liu, formerly a vice president of Pantheon Capital’s Hong Kong office, to lead its Asia unit. At this juncture, ING Insurance’s Asian fund of funds will draw on capital from the insurance house’s balance sheet.

The list of fund of funds are arriving at the Asian private equity porch is far from over. In July, the fund of fund arm of one of Europe’s largest and most elite family offices will join the party. Suddenly, funds of funds have become the latest growing profile in Asian private equity. This latest boom is another manifestation of the immeasurable allure in the East.

Greater China Corner - News

Renewed Attempt to Reform Shares

After previously failing to gain the approval of shareholders to convert all non-tradeable shares in Shenzhen Development Bank to tradeable shares, TPG Newbridge is making a renewed effort to overcome the impasse. This is the private equity firm’s second attempt to do so.

The latest revised scheme comprises a basket of instruments to entice existing tradeable shareholders to agreeing to the scheme. For holders of tradeable shares, they are entitled to one bonus share for every 10 tradeable shares. In addition to this, 0.009 yuan payment is also given to cover tax-related expenses. The deal is further enhanced with the entitlement of 1.5 warrants that have varying maturity dates. The scheme values the net asset value of each of Shenzhen Development Bank’s shares at 3.33 yuan, a 28% increase to that proposed back in May last year.

There are compelling reasons for TPG Newbridge to increase its offer in order to proceed with this share reform. Since coming under control of the private equity firm in 2004, the lender’s balance sheet has improved substantially. Its total assets have increased to 260.6 billion yuan (US$32.5 billion) from, 204.4 billion yuan in 2004. Significantly, its net asset value per share surged to 3.33 yuan each compared to 2.43 yuan in the same period of 2004. Under a regulatory mandate issued by the China Securities Regulatory Commission, all listed companies in China must convert all non-tradeable shares to become tradeable shares. In missing the December 2006 deadline, Shenzhen Development Bank is facing a host of barriers that inhibited the growth of the bank. It is currently barred from raising further funds despite facing a dangerously low capital adequacy ratio, at 3.7%, compared to the required 8%.

Greater China Corner - Funds

In Vogue: Venture Funds

Launches of two new venture capital funds that bespeak investors’ soaring confidence

Once, venture capital funds mushroomed along Route 128, as well as in Silicon Valley in the USA, the paradigm is shifting to the East. It is now in China that venture capital funds are registering exponential growth. The latest announcement from Israel-based Infinity Equity Capital testifies to investors’ overwhelming confidence to attract potential early stage companies in China.

The size of Infinity Equity Capital’s second China-focus fund, Infinity Israel-China Fund, is to be increased to US$250 million, from the initial US$150 million. According to Infinity Equity Capital, the decision to raise the initial fund size by 66.7% followed after there had been a display of “strong interest” in the fund. At the fund’s first closing, it had already received US$155 million, exceeding the original target size by US$5 million. The fund enlisted GlenRock Israel, Ltd. and Clal Industries and Investments Ltd. as its limited partners. It has already made its first investment through a deployment of US$3.2 million to Mate Intelligent Video. GlenRock Israel is a venture capital investment fund management firm. Clal Industries and Investments is a listed company on the Tel Aviv Stock Exchange, and is a subsidiary of the IDB Group.

Most recently, Infinity Equity Capital’s first venture fund in China, The Infinity/CSVC Joint Fund, announced a partial divestment of its holdings in WLCSP, a technology company that is engaged in chip-scale packaging services.

Infinity Equity Capital is not the only group to benefit from investors’ soaring interest in seizing opportunities in China’s early stage technology companies. Gobi Partners recently also announced the launch of its second fund, Gobi Fund II, L.P., with a target fund size of US$120 million. The size of this fund is 2.5 times of its preceding fund which has a size of US$50 million. The new fund will have a ten year tenure and focuses on information technology and digital media sectors. NTT DoCoMo, Japan’s leading mobile communications company, which had also invested in Gobi Partners’ first fund, is allocating US$10 million to Gobi Fund II, LP.

Japan Corner - News

Tokyo Takes Steps to Become an International Hub

Based on the recent rhetoric of the new head of the Tokyo Stock Exchange, and various measures being implemented by Japan, Asia’s largest economy appears to be ready for a new era in which Japan will seek to further integrate its economy with regional and global counterparts.

In his first press conference, Mr Atsushi Saito, the incoming president of the Tokyo Stock Exchange, made it clear that the Tokyo Stock Exchange can no longer rest on its laurels, a telling remark that signals pragmatic changes ahead for the country’s financial system. During the past few months, the largest bourse by market capitalisatioin in Asia has not only established alliances with the New York Stock Exchange and the Chicago Mercantile Exchange, but has also celebrated the listing of its first China stock. On 26th April, Asia Media Co. Ltd., which was backed by Sequoia Capital China, became a quoted company on the MOTHERS market of the Tokyo Stock Exchange. Furthermore, according to China’s 21st Century Economic Herald, the impending 50:50 joint venture between China’s Jilin Xiuzheng Pharmaceutical Group and Japan’s Miyakoshi Corp. could also be in the queue to become a quoted company on the Tokyo Stock Exchange.

In the regulatory area, Japan has also taken bold strides. With effect from May 2007, foreign companies are allowed to use their own shares in acquiring Japanese companies. This new form of acquisition, called “triangular mergers”, allows a non-Japanese company with a Japanese subsidiary to acquire a Japanese target company by having the target company merged with the acquirer’s local subsidiary. The acquired company’s shareholders could be given cash, assets or even the foreign acquirer’s shares.

The “triangular mergers” will become part of the fibre of Japan’s new Company Law, and is intended to be an impetus for cross- border mergers and acquisitions.

Another piece of regulation that could soon be introduced, that promotes a greater level of transparency, is related to the real estate transactions. The new law, which is expected to be introduced in September, is intended to ensure appropriate assessment of real estate transaction prices, as well as in the future rental forecast. The move is seen as yet another attempt to guide Japan’s financial industry to align with global practices.