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October 2007 Issue
In Brief

Asia Deal Sources Broaden with markets in the West and secondary situations lead to deals as independent firms receive the backing of institutional investors Feature
Investors in China are Focusing on VC that underscores the direct equity momentum taking place there Institutional Corner
Aussie Media Assets Allure Investors as two investor groups made their acquisitions General Section – Buyouts
Deal Making Odyssey Continues as evidenced by two deals in Australia and New Zealand General Section – Buyouts
A Colossal Capital Pool in China that will help to advance Beijing’s objectives for certain industries Greater China – Funds
Investors Court Taiwan Assets and the island transaction aggregate soars Greater China – Investments
Greater China Steals the IPO Show as investors display overwhelming interest to China stocks Greater China – Divestments
Billion Dollar Funds Have Been Launched for Indian infrastructure plays that are changing the country’s fund pool profile GIndia Corner – Funds
Deal Sizes in India are Growing in the wake of the infrastructural investment momentum India Corner – Investments
India’s Vibrant Stock Market Boasts impressive listing performances with a long list of companies waiting to become public India Corner – Divestments
A Sushi Restaurant Seeks PE to assist with its next corporate charter Japan Corner – Growth/Expansion
Content

Institutional Corner

Pan Asia
News
Funds
Buyouts
Deal-making Odyssey
Growth/Expansion

Greater China
News
Funds
Investments
Growth/Expansion
Venture Capital
Divestments
The IPO Show

India Corner
News
Funds
Investments
Infrastructure Moments
Growth/Expansion
Venture Capital
Divestments

Japan Corner
News
Funds
Buyouts
Growth/Expansion
Divestments

People on the Move
Summary
Market Watch
Index & Exchange Rates

Deal Creation

The bells have finally tolled for mergers and acquisitions (‘M&As’). After months of embracing barrage of unfavourable comments, in the face of the prevailing credit squeeze resulting from the US subprime loan crisis, the global volume of M&As has fallen. In the third quarter of the year, M&As worldwide recorded US$1 trillion in deal value, a 42% plunge compared to the US$1.74 trillion in the same period 12 months ago. The three months ending September was also the worst decline for leveraged buyouts since the first quarter of 2005, down to US$15.5 billion, according to Dealogic. Although investment activities from both China and India have helped to shore up the region’s M&A level, deal consummation has so far evidenced a laggard pace. In the first three quarters of the year, investors have clinched deals with an aggregate value of US$26.5 billion. This is a far cry from the towering US$52.3 billion for 2006. Even the optimists are reluctant to forecast that the 2007 deal value aggregate would surpass that achieved during 2006.

Asian Deals Made in the West

Against mounting odds, private equity investors are demonstrating their creativity in making deals. Increasingly, transactions consummated in Asia were not originated in the region. Actis has recently executed the management buyout of the Malaysia-based Mirvan Far East for an undisclosed sum. The primary source of this buyout came from Ireland where Mirvan Ltd., the parent company of Mirvan Far East, is located. In 3i’s recent oiltank terminal deal, the Singapore operation is part of the oil tank farm’s global assets. The recent US$48 million commitment made by the US-based Francisco Partners to DarwinSuzsoft is another example. DarwinSuzsoft is an information technology outsourcing service provider which is headquartered in Massachusetts, USA. Its core operation is in fact in China. For Francisco Partners which specialises on the buyouts of technology companies, on the heels of its recent acquisition of a business process outsourcing operation in Australia, the investment in DarwinSuzsoft is an augmentation of its Asian strategy and leads it to the largely untapped business process outsourcing market in China. It is, however, Bain Capital Partners LLC (‘Bain Capital’)’s partnership with China’s Huawei Technologies (‘Huawei’) in taking ...

Buyouts

Deal-making Odyssey

The road to deal completion is full of twists and turns

The path to buyout takeovers is becoming increasingly rugged. After more than three months of tireless effort, both Ironbridge Capital and Archer Capital met a setback in their bid to own the pharmacy and consumer units of Symbion Health Ltd. (‘Symbion’). The consortium of private equity investors faced uncertainty in being able to acquire Symbion assets when only 74% of shares voted in favour of the takeover proposal, 1% below of the 75% threshold percentage required to proceed with the takeover. Symbion was to sell its healthcare operations to Healthscope for A$2.9 billion (US$2.41 billion), while Ironbridge Capital and Archer Capital were to pay A$1.085 billion to acquire Symbion’s pharmacy and consumer units. The merger of Symbion and Healthscope would then create Australia’s biggest medical testing provider and its second-biggest private hospital operator.

The powerful force that blocked this buyout was Primary Healthcare (‘Primary’), which held a 20% shareholding in Symbion. Primary, a competitor to Symbion, had been positioning itself to take over Symbion. During the past few months, it has spent over A$531 million to accumulate a stake of 20%.

The buyout game is far from over. Symbion has now made known its plan to explore an option to use an “alternative structure”, in order to materialise the planned merger with Healthscope. Under the circumstances, Ironbridge Capital and Archer Capital may still be able to claim ownership to Symbion’s pharmacy and consumer units. At the same time, various reports have also suggested that Primary could partner with private equity groups to make a fresh bid for Symbion. Australia’s The Age named Pacific Equity Partners as one of the possible parties that could be joining Primary.

A week after the shareholder meeting, Symbion made known its interest to consider “competing proposals”, and would endorse such a proposal “if it is clearly demonstrated to be capable of providing a superior outcome” for Symbion’s shareholders. The bid for Auckland International Airport Ltd. (‘AIAL’) is a living example that tenacity is a prized asset that financial investors must possess. When Dubai Aerospace Enterprise (‘Dubai Aerospace’) offered NZ$3.80 (US$3.03) for each of the airport’s shares, 22.6% higher than the NZ$3.10 being offered by the Canada Pension Plan Investment Board (‘CPP Investment’), the latter appeared to have been ushered out from the bidding party. Dubai Aerospace displayed confidence it would become a partner of AIAL, and publicly commented that the airport operator has a “great future”, if it has the right partner. Yet, on 6th September, both parties announced a mutually-agreed termination of their negotiations.

Similar to Symbion, the bidding process to take an equity position in AIAL has been an eventful saga. While Dubai Aerospace’s higher offer price had won the unanimous recommendation from directors of AIAL back in July, it soon turned into a political issue. New Zealand’s Prime Minister Helen Clark supported comments made by Trade Minister Phil Goff, who maintained that “shares in the airport and the Ports of Auckland ought to remain in the public sector”.

AIAL has two principal groups of investors at home. The New Zealand government currently holds a 23% stake, while Infratil, a domestic utilities investor, jointly with the New Zealand Superannuation Fund holds a 6.2% stake in the nation’s busiest airport. The combined force of these two blocks of domestic investors could potentially derail any foreign investors’ attempt to take control of AIAL.

CPP Investment is sensitive to this issue. In its latest expression of continued interest in AIAL, it made no adjustment on the earlier offer price. But the Canadian public pension fund did indicate that it was prepared to accommodate such concerns by taking up no more than 49% in AIAL, in order to not dilute the interests of both the Auckland City Council and the Manukau City Council.

CPP Investment is offering AIAL with three choices, one of which will be an all cash offer that will pay for each of the target company’s shares. The other two options will involve a combination of cash and the issue of new securities, that value each of AIAL’s shares at NZ$3.90.

CPP Investment’s latest gesture to AIAL is another confirmation of the changes occurring in deal equations, in which the selling party’s shareholders are more in control of the acquisition process.

Greater China Corner - Divestments

The IPO Show

A number of debuts drew investors’ overwhelming response

There has been no end to the Greater China initial public offering (‘IPO’) stampede. The month of September continued to register investors’ feverish responses to recent listings on both the Hong Kong and Shanghai bourses.

On 20th September, Hidili Industry International Development Ltd. (‘Hidili’), an integrated coking coal company, became a quoted stock on the Hong Kong Stock Exchange (‘HKSE’). As an indication of investors’ keen interest to purchase Hidili’s shares, its IPO was over-subscribed by a staggering 670 times. Hidili offered 600 million shares at HK$6.83 (US$0.88) each. On its first day of trading, the coking coal company saw its share price surge by 77.4% to close at HK$12.12.

Earlier in the year, Hidili received a US$50 million capital injection from Baring Private Equity Asia. Prior to Hidili’s public listing, Baring Private Equity Asia converted its convertible notes into equity shares at a discount of 78.2% to 83.95% of the offer price. The private equity firm has been able to sell a portion of its holdings, and clocked a return of US$70 million to its coffers. Based on the Hidili’s offer price, Baring Private Equity Asia’s residual holdings would command a book value of US$192.6 million. Another China play that gave its investors cause for celebration has been Sino-Ocean Land Holdings Ltd., (‘Sino-Ocean’), one of the largest real estate companies in Beijing. The third-largest public offering on HKSE, as Sino-Ocean raised HK$11.94 billion, the property company’s IPO recorded an oversubscription of 206 times.

In the second half of 2006, Sino-Ocean received an aggregate US$146.9 million from a host of foreign financial investors. Standard Chartered Private Equity committed US$35 million, while Morgan Stanley, Merrill Lynch and Credit Suisse, through their respective real estate investment vehicles, accounted for the residual.

Sino-Ocean offered its shares at HK$7.7 each. On its first day of trading, its shares closed at HK$11, a 43% rise. Unlike the Hidili case, all its investors had undertaken not to dispose of their holdings. However, in terms of book value these investors have made a 4.27 times gain of their invested capital.

As China’s A-share market shows no sign of any adjustment, the recent listing of Bank of Beijing, backed by International Finance Corp. (‘IFC’), further fuelled the IPO momentum in the Greater China stock markets.

On 19th September, Bank of Beijing, China’s largest city-level commercial bank, joined its peer, Bank of Nanjing, to become a quoted stock on the Shanghai Stock Exchange. It offered its shares at 12.5 yuan (US$1.56) each, 50 cents higher than the proposed maximum offer price. On its first day of trading, Bank of Beijing’s share prices closed at 22.68 yuan, 81% higher than the offered price. It raised 15 billion yuan through this public offering.

In April 2005, the IFC committed 479 million yuan to Bank of Beijing and took up a 5% stake. The private sector investment arm of the World Bank, along with other foreign major shareholders, have agreed to hold their shares in the lender for at least three years after Bank of Beijing’s public offering.

India Corner - Investments

Infrastructure Moments

Investors are pouring capital to infrastructure-related companies

India’s pressing need for capital to help with the country’s infrastructure development is reshaping its private equity market. In addition to a series of funds being launched for this particular sector, investors are making bold commitments on infrastructure plays. Jacob Ballas Capital Pvt Ltd., manager of India funds sponsored by New York Life Investment Management, has recently committed US$35 million to Aster Tower. The investment underscores the demand for communication towers as telecommunications in India continues to rapidly grow.

Aster Tower is part of the Aster Group. Another unit within the group, Aster Infrastructure, is known to have received a substantial pool of capital from the New Silk Route Private Equity, which increased its holdings in Aster Infrastructure to 72.5% through a deployment of US$56.7 million.

Old Lane India Opportunities Fund, which has become part of the Citigroup Alternative Investment Group, recently committed US$26 million to Sical Infra Assets Ltd., a newly-formed company to house Sical Logtistics Ltd.’s asset-heavy, capital-intensive, longer term infrastructure business. The parent company’s decision to spin off Sical Infra Assets is intended to crystallise Sical’s investment through Sical Infra Assets, which is held through a special purpose investment vehicle. The deal is expected to complete by early 2008. Motilal Oswal Venture Capital Advisors Ltd. (‘Motilal Oswal VC’). is the latest that is capturing opportunities arising from this infrastructure investment boom. Motilal Oswal VC committed 190 million rupees to IMP Powers Ltd., which is a power equipment maker. One of the oldest names in India’s power equipment making industry, IMP Power products include various types of transformers, industrial metres and testing equipment.

The list of investors building up their infrastructure portfolio is set to grow. There are reports that suggest a number of institutions in the financial industry are vying for infrastructure assets. On the heels of its recent commitment to Sical Infra Assets, Old Lane India Opportunities Fund is planning to commit US$26 million to take a 26% stake in KVK Energy & Infrastructure Pvt Ltd., which is engaged in building power projects.

The power category is certainly the favoured segment within the infrastructure sector. Both Goldman Sachs and Standard Chartered Private Equity were reportedly each looking at two power companies. According to market sources, Goldman Sachs is close to clinching the deal to invest in the Gurgaeon-based company, Sudhir Gensets, a power generator manufacturer, as well as a provider of turnkey power solutions to some of the largest corporations in India. Standard Chartered Private Equity could also be deploying US$50 million to take a 11% stake in Powerica, a power equipment company. Like Sudhir Gensets, Powerica is also one of the leading power equipment makers in India.