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july 2007 Issue
In Brief

Socially Responsible Investing is the new order in private equity and has proven that impressive returns can be made as independent firms receive the backing of institutional investors Feature
Investors Return to Vietnam which is budding with a new set of opportunities Analysis
The Rising Institutional Investor in the East is China Institutional Corner
Third Billion Oz Dollar fund closed and marks a new era Down Under Funds
Financial Prowess is No Longer sufficient to clinch deals in Oz and Kiwi land Buyouts
Investors Vie to Take Over UTAC and Courts’ assets in Singapore and Malaysia Buyouts
Carlyle’s EMC is Entangled in the Rebar Group scandal Greater China - News
Taiwan Records Vibrant Deal activities Greater China - Investments
China’s A-Share Market Beckons home-grown technology companies Greater China - Divestments
Buyout Wind Blows Strong in Indian private equity India Corner - Investments
Foreign Investors Clinch Deals in a variety of industries in India India Corner - Growth/Expansion
Aurobindo’s Investor Sells Down holdings and records handsome returns India Corner - Divestments
Navis’ Eatery Business Brings delicious exit results India Corner - Divestments
Deals are Illusory in Japan Japan Corner - Investments
Hokkaido VC Goes to Mongolia Japan Corner - Growth/Expansion
Content

Analysis
Mekong’s Star

Institutional Corner

Pan Asia
News
Advent of the Next Financing Boom
Funds
Buyouts
Growth/Expansion
Divestments

Greater China
News
The Black Sheep
Funds
Investments
Buyouts
Growth/Expansion
Venture Capital
Divestments

India Corner
News
Funds
Buyouts
Growth/Expansion
Venture Capital
Divestments

Japan Corner
News
Buyouts
Growth/Expansion
Divestments

People on the Move
Summary
Market Watch
Index & Exchange Rates

Future Realm

An issue, cosmic in scale, is facing mankind. For the first time, the topic on global warming dominated the annual G8 Summit. In early June, leaders of the world’s wealthiest nations convened in Germany and discussed the pressing issue of the rising level of carbon dioxide that is threatening current and future generations on the globe. In the motto of improving the future of mankind, socially responsible investing (‘SRI’), which incorporates environmental, social and governance issues, is beginning to shape the investment management industry. According to a recent report published by the European Venture Capital Association, there has been a surge of venture capital investment activities within its member countries, driven by a growing interest in the potential for environmentally friendly projects or those related to clean technology. In Asia, while the principles of SRI have yet to fuel the growth of venture capital investment activity, they are directing its private equity investors to a new investment frontier. The recent listing of China High Speed Transmission Equipment Group Co., Ltd. (‘China High Speed Transmission’) shed light on an investment that embodies the characteristics of this new order in Asia’s long-term equity investment landscape.

Investing for the Future

Until recently, companies that were engaged in clean technology received negligible attention. But China High Speed Transmission rose to stardom when it was listed on the Hong Kong Stock Exchange in early July. Backed by a handful of financial investors, including the Development Partners Fund that is jointly managed by the Hong Kong-based Value Partners and the Netherlands Development Finance Co. (FMO) as well as GE Capital, China High Speed Transmission has a focus in making mechanical transmission equipment used in wind power generation. It is engaged in an industrial sector that has enchanted public investors as it falls within the alternative energy sector. Not only did its shares record the highest volume of subscriptions, over-subscribed by 700 times, its first day trading performance also made history on the Hong Kong Stock Exchange. China High Speed Transmission’s shares changed hands at HK$14.0 (US$1.79) each at the conclusion of its maiden debut, nearly doubling its offer price of HK$7.08. China High Speed Transmission has enlisted the classic financier, such as FMO, a development financing institution funded by the Netherlands government, and a prime force that advocates SRI. It is however the company’s listing performance that mirrored public investors’ belief that those that are engaged in environmentally friendly products in ...

Analysis

Mekong’s Star

After an absence of 10 years, investors are flocking back to Vietnam

Once they were political foes. This is history when, in June, President Nguyen Minh Triet of the Socialist Republic of Vietnam shook hands with President George W. Bush of the USA. The first state visit by a political leader from Vietnam to the White House, President Triet’s friendly call to the world’s most powerful economy symbolises not only his country’s rising political stature, but also its escalating attraction as the next tiger economy in Asia.

Since 2002, Vietnam’s gross domestic product has been enjoying an envious growth, advancing from 7.1% to 8.2% in 2006 and is forecast to reach 8.5% by 2008, according to the Asian Development Bank. Today, Vietnam is not only assuming an important role in Southeast Asia’s burgeoning economy, but is central to a new page of private equity in the ASEAN region.

Filling Up the Capital Pool

Since 2004, Vietnam has been the prime force that fuelled the growth of the fund pool in Southeast Asia. On average, funds that targeted Vietnam accounted for no less than 78% of the fresh pool of capital coming into the Southeast Asian market. As Vietnam prepared to join the World Trade Organisation as its 150th member in 2006, the pool of private equity directed to the country surged to US$275 million, virtually doubling that recorded for the preceding 12 months.

In this first revival of interest by private equity in Vietnam since the Crisis, in addition to a host of funds that target various segments of opportunities, the private sector fund management firms are at the forefront to scout for a broad range of opportunities. VinaCapital, an independent fund management firm, that commenced looking at opportunities in Vietnam in 2004, has a diversified fund management portfolio. It comprises of funds for venture capital, growth/expansion, real estate and infrastructure situations. With an operational history of less than three years in Vietnam, VinaCapital’s fund pool under management has surged to US$1.42 billion.

The UK-based Prudential Inc. which had long established its presence in Vietnam is sharing a similar strategy as VinaCapital in acknowledging that the country presents more than one set of opportunities that warrant the launches of funds with different focuses. Last year, through allocations from its parent company and its clients, Prudential Vietnam Fund Management Co. was entrusted with a US$200 million private equity fund pool which is expected to be increased to US$300 million in the second half of this year. At the same time, its sister fund management unit, Prudential Property Investment Management is the first global institution that is launching a real estate fund for Vietnam that has a target size of US$100 million to US$500 million.

With Vietnam widely tipped as the next business process outsourcing centre in Asia, both the US-based International Data Group and Draper Fisher Jurveston believe Vietnam holds the promise to be the next technology hub in Asia. In 2004, International Data Group launched its IDG Ventures in Vietnam that has been mandated with US$100 million to seek venture capital opportunities there. For Draper Fisher Jurveston, the Silicon Valley legendary venture capital firm has decided to partner with VinaCapital to launch the US$50 million DFJ VinaCapital LP.

Investments

Outside of Singapore, Vietnam has positioned itself as the most vibrant investment destination in Southeast Asia. While the Lion City has established itself as the center for buyouts in Southeast Asia, Vietnam fulfils the role as the market for investment activities in growth companies.

Although the annual investment aggregate remained relatively petite, compared to other major markets, it boasts substantial growth in percentile. In 2004, only a handful of deals were known to have been consummated that added up to less than US$5 million, but the amount soared to US$58.72 million in 2006, with nine transactions. Significantly, foreign investors have made a statement on their assessment of the Vietnamese market when TPG Ventures and Intel Capital committed US$36.5 million to Corporation for Financing and Promoting Technology (‘FPT’). It was the single largest deployment by foreign venture investors.

During this period, private equity investors have also demonstrated their readiness to deploy larger investment sum, compared to the past. The investment profile of Mekong Capital is one of the best illustrations. Back in 2004, the firm’s average deal size was US$1.1 million. Last year, its largest deal was a US$6.0 million investment in International Consumption Products Joint Stock Co. In the first half of this year, Mekong Capital has earmarked US$6.25 million for Ngo Han Magnet Wire Joint Stock Co., although the initial commitment was US$1.91 million. It was also the firm’s second round of financing for the invested company.

The investment momentum in Vietnam is set to escalate as the State Securities Commission (‘Commission’) enters its final phase of the equitisation process for its state-owned companies. According to Mr Nguyen Ngoc Canh, director of the Commission, there are currently around 2,800 state-owned enterprises that will be equitised and they are all giant corporations, such as the Vietcombank and Exim Bank.

Patience Capital

Perhaps no market has tested investors’ patience than Vietnam. After more than a decade of unwavering faith, Dragon Capital Group was able to report handsome returns last year, for the first time. Its Vietnam Enterprise Investments Ltd (‘VEIL’), which is listed on the Irish Stock Exchange, currently boasts a market capitalisation of US$893 million, a towering surge compared to US$ 20 million back in August 1995 when it was first launched. It had been a rugged journey before VEIL reaches its current asset base after having lost a third of its value during its first six years. But the wheel of fortune turned last year when founders of Dragon Capital were known to have been able to take home some US$20 million as their carried interest. One of VEIL’s most rewarding investments is Saigon Thong Tin Commercial Joint-Stock Bank or known as Sacombank, in which VEIL held an 8.77% stake. Since listed on the Ho Chi Minh City stock exchange in August 2006, Sacombank’s share price has more than doubled. There are reports that suggested VEIL’s holdings in Sacombank has multiplied by 10-fold, compared to its original invested capital.

Stock Market

At the end of June, the seven-year old Vietnam stock exchange’s market capitalisation reached 300 trillion dong (US$18.62 billion). Despite its relatively small size, it has maintained an envious record in sustaining investors’ confidence. Since 2006, the Vietnam Index has recorded a staggering rise, breaching 1,060 by the end of June this year, from a low of 300 back in January 2006.

In its quest to integrate with the Southeast Asian economy and modernise its capital market, the Vietnam stock exchange has recently enlisted assistance from both Credit Suisse and the Singapore Exchange Securities Ltd. The two foreign partners will provide technical expertise in the areas of listing requirements and preparing companies for pre-initial public offering road shows, etc.

Vietnam’s stock market, Asia’s youngest, has yet to prove to be a profitable exit avenue for private equity investors, as only a handful of companies backed by private equity having been listed on the Ho Chi Minh City bourse.

Observation

The astute and long-term investors are taking a cautionary disposition toward Vietnam. One of the most experienced private equity managers of a global institution noted that the investment climate in Vietnam is not in favour of investors. “We have a relatively small pool of ‘bankable’ deals, and yet valuation is escalating” he said. Mr Kevin Snowball, managing director of PXP Vietnam Asset Management Ltd. is known to have made public that his fund will not be raising further capital until more prospective targets are forthcoming. Dragon Capital is also taking the same position, a person close to the firm disclosed. To Mr Chris Freund, managing director of Mekong Capital, the lack of governance discipline is a worrying factor as Vietnam greets a new chapter of boom in private equity.

Like all emerging markets, Vietnam holds its promises and perils. The road to profitable returns calls for patience and regimented investment practices.

News

Advent of the Next Financing Boom

In a development that signals booming opportunities ahead in infrastructure financing, Global Infrastructure Partners, with offices in the USA and United Kingdom announced the launch of its Asian operations in June. A joint venture between Credit Suisse and GE Infrastructure, which came into operation in late 2006, it has a funds pool of US$1 billion, according to market reports. It has appointed Mr. Mike Nikkel as its partner. Mr Nikkel was formerly in charge of OneEnergy, a joint venture between Hong Kong’s CLP Holdings and Mitsubishi Corp. CLP Holdings is one of the main providers of electricity to Hong Kong.

In Europe, Global Infrastructure Partners has been on an acquisition spree. It recently acquired IPH (Jersey) Ltd., the port development company that is building a new harbour at Great Yarmouth, located on the east coast of the United Kingdom. It has also signed an agreement to become the new owner of London City Airport which was previously owned by Airport Management and Investment Ltd. In late June, Global Infrastructure Partners marked its entrance to Asia by teaming up with the Dubai-based Dubai Ports World and made an undisclosed commitment to India’s Chennai Container Terminal.

In establishing its Asian branch, Global Infrastructure Partners signals that an infrastructure financing era in the region is afoot.

In Australia, the utility giant Alinta has been a target of an A$8 billion (US$6.65 billion) takeover since the beginning of the year, although it has been an eventful saga for the interested investors. There is also Marathon Resources Ltd, to which the Hong Kong-based Techpacific Capital Limited was trying to acquire.

In the Philippines, Mirant Philippines Corp., the country’s major power plant operator, is up for sale following the decision made by its parent company, Mirant Corp. The Atlanta-based power company emerged from Chapter 11 bankruptcy protection in January this year. The sale of Mirant Philippines has attracted a long list of domestic and foreign strategic investors. Back in late 2006, TPG Newbridge was known to have teamed up with other corporate investors to bid for it.

According to the United Nations’ Economic and Social Commission for Asia and the Pacific (UNESCAP), the Asia Pacific region will require an estimated US$228 billion to US$600 billion per year in resource needs for infrastructure investment. In a report published following a March high-level dialogue between government officials that took place in India, UNESCAP stressed that the “private sector must play an important role in infrastructure.

Asia possesses innovative infrastructure models, using special purpose vehicles, development and bond financing, according to UNESCAP. But with cross-border infrastructure fulfilling an important role for sustaining growth in the region, regional financing mechanisms are crucial to sustain long term infrastructure finance success.

Within the region, Southeast Asia is expected to absorb most of the infrastructure financing needs. The Philippines government has plans to spend US$7.2 billion to upgrade its infrastructure, while the Thai government is believed to have drawn up a US$45 billion infrastructure blueprint .

Greater China Corner - News

The Black Sheep

A year after having clinched its second media deals in Taiwan, The Carlyle Group (‘Carlyle’) is now embroiled in the legacy of one of the island’s largest corporate scandals. The connecting link is Mr Gary Wang, a son of Mr You-theng Wang who founded the Rebar Group. It was also in Rebar Group that the junior Wang gained his business acumen before he founded Eastern Multimedia Company. After having sold his controlling stake in the media empire that he once commanded, Mr Gary Wang continued to be associated with the new entity controlled by Carlyle. In this entity utilised by Carlyle to take over Eastern Multimedia Company, Mr Gary Wang remains a shareholder, and continues to be a major shareholder in Eastern Broadcasting Co. Ltd., in which Carlyle also holds a 40% stake, although he resigned as a director on 20th June.

In January this year, the Rebar Group was pronounced insolvent when over NT$73 billion (US$2.2 billion) was found to have been siphoned from the company’s coffers. The senior Mr Wang fled to the USA with his wife. While Mr Gary Wang’s siblings were detained by law enforcement bodies, he had distanced himself from Rebar Group’s scandals and even made public pleas to his parents to cease being fugitives.

But as prosecutors intensified their probe into Rebar Group’s fall, the Bureau of Investigation has reason to believe that Mr Gary Wang was engaged in fraud in some of Rebar Group’s subsidiaries, as well as “suspected breach of financial laws” in the sale of Eastern Multimedia Company to Carlyle, according to a government’s media channel. On 15th June, Mr Gary Wang was detained.

Carlyle is feeling the impact of the destructive currents generated by the fall of Rebar Group. Five days after Mr Gary Wang was first detained, on 20th June, trading of Eastern Broadcasting Co. Ltd. was suspended. Creditor banks of the broadcasting company also issued their ultimatum on a NT$3.8 billion loan. The half-yearly NT$400 million principal and interest payment, which was due in April, went unpaid. By 1st July, if Eastern Broadcasting Co. Ltd. fails to deposit this sum to its creditor banks, its fixed assets will be auctioned off. Until this year, Eastern Broadcasting Co. Ltd. had been on schedule to meet its half yearly NT$400 million payment.

Despite prosecutors’ allegations against Mr Gary Wang, Carlyle is believed still to be proceeding to acquire Eastern Home Shopping & Leisure Company. According to a recent report by Taiwan’s Economic Journal, Carlyle has established a strong relationship with Mr Gray Wang, who was a limited partner of one of Carlyle’s funds through a NT$700 million subscription. At the time when Carlyle was working to close the Eastern Multimedia Company deal with Mr Gary Wang, the latter was cash-strapped. To assist Mr Gary Wang, Carlyle took steps to return the amount subscribed by the limited partner.

In June 2006, Carlyle committed US$1.5 billion to take a 59.3% stake in Eastern Multimedia Group’s multimedia business, and 40% in Eastern Broadcasting Co. Ltd. Since then, Carlyle has deployed an additional US$100 million to increase its stakes in 12 cable TV stations.