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November 2007 Issue
In Brief

Sub-prime Loan Crisis Tests Asian private equity’s depth and strength. Can the industry weather this financial storm? Feature
Two Cases Seeking Judicial Opinions highlight pressing governance issues in the Greater China region Analysis
Funds with Special Focuses are being launched that indicates a level of maturity has arrived Funds
Southeast Asia Sees a Surge of funds Funds
Tough Market Conditions Down Under as buyout investors face competitions and delay Buyouts
Yuan-denominated Funds Mushroom in China Greater China – Funds
Target: Hong Kong-based Cos. which present a new set of opportunities Greater China - Investments
Surging Capital Deployment To consumer-related companies Greater China - Growth/Expansion
Race to List on Various Exchanges as public investors court China assets Greater China - Divestments
India’s Real Estate Market attracts global attention India Corner – Real Estate
Capital Flows to Infrastructure projects as India beckons investors India Corner – Investments
A Long Queue of Cos. Waiting to be listed in India India Corner- Divestments
Arysta Rewards Its Long-Term investors with handsome returns Japan Corner - Buyouts
Buyout Keeps Momentum in Japan as investors bid for CYBIRD and assist in Ekitan’s buyout Japan Corner - Buyouts
Content

Institutional Corner

Pan Asia
News
Funds
Buyouts
Investments
Divestments

Greater China
News
Funds
Yuan Funds
Investments
Growth/Expansion
Divestments
The Beauty of Being Quoted

India Corner
News
Real Estate
Funds
Investments
Growth/Expansion
Venture Capital
Divestments

Japan Corner
News
Buyouts
Growth/Expansion

People on the Move
Summary
Index & Exchange Rates

A Test of Confidence

The hour of reckoning has arrived. The magnitude of the US sub-prime loan crisis is beginning to be felt as it claimed two of the most notable figures in the US financial industry as its victims. Mr. Stanley O’Neil, chief executive officer of Merrill Lynch and his counterpart in Citigroup, Mr. Charles Prince, resigned following staggering asset write-downs that their respective employing institutions have to bear relating to sub-prime and other mortgage-related businesses. For Merrill Lynch, it was US$8.4 billion while Citigroup, US$11 billion. Market analysts are projecting further losses for both institutions.

There are no signs that the sub-prime loan clouds gathering over the US economic skies will disperse soon. As Asian private equity enjoys its first boom period in history, does it have the depth and strength to meet the challenges of the unprecedented adjustments looming in the global financial markets?

The Differences in a Decade

In the near term, the Asian private equity industry is in a solid position to navigate through troubled waters. Unlike a decade ago, when the 1997-1998 Asian Financial Crisis plagued the region, the fundamentals of Asian private equity are sound. Significantly, Asian private equity investing has proven to be a viable and profitable investment model.

Since 2004, over US$60.4 billion has been returned to private equity investors, representing a 2.8-fold return on invested capital and an annualised minimum 30% internal rate of return. This proven track record has been a powerful magnet that has led to an increasing number of Asia-based institutional investors allocating capital to private equity funds in the region. In 2005, there were 115 Asia-based investors known to have participated in private equity funds as limited partners. The number edged up to 136 in 2006 and, in the first ten months of this year, 122. The consistent number ...

Greater China - Funds

Yuan Funds

Yuan-denominated funds are in vogue

The China private equity funds pool profile is changing as rapidly as the country’s economic growth. In a development that further testifies to the Chinese currency’s strength and its growing importance in the global financial markets, a number of yuan-denominated funds have been launched recently. Significantly, China’s major city government bodies are staunch advocates of such domestic currency funds..

The Shanghai-Pudong government has recently launched a new venture capital fund that will invest in the Pudong New Area. Part of the Huiyan Project, the yuan-dominated fund, known as Huiyan Investment Fund, has attracted 350 million yuan (US$46.6 million) from a group of local investors.

The Shanghai Pudong Technology Investment Ltd. has committed the largest sum, 100 million yuan, to the fund. It is also entrusted with the mandate to be its manager. Huiyan Investment Fund’s target is to assist some 50 small and medium enterprises to seek public listings on the domestic bourse.

The other investors that have subscribed to the remaining capital pool of the fund are Shandong Hengbang Investment Management Co., Ltd. and Shanghai Pengxin Group Co., Ltd.

In Southern China, the Shenzhen government has also recently initiated efforts to support venture capital investment. Its Shenzhen High-tech Property Exchange announced the final closing of the 100 million yuan Nanhai Venture Capital Fund I.

Similar to the Huiyan Investment Fund, the Nanhai Venture Capital Fund I is also denominated in the local currency, and has a focus on small and medium enterprises. But, unlike its counterparts in Shanghai, Nanhai Venture Capital Fund counted retail, rather than institutional, as its investors. The fund has attracted subscriptions from 50 investors, 49 of which are individual investors, while one is a legal entity.

Even Hong Kong-based companies are favouring yuan-denominated rather than foreign currency-based funds. Richlink International Capital Research Co., Ltd., a Hong Kong-based investment firm, has recently launched a yuan-denominated venture capital fund. Christened as Bohai Value Investment LP, it has a fund pool size of 500 million yuan. One of the latest China-focused yuan-denominated funds, it has attracted domestic publicly-listed firms and individuals as its limited partners. Bohai Value Investment will invest in high growth technology companies.

In the past one year, yuan-denominated funds have began to establish a rising profile in China’s funds pool. So far, 21 yuan-denominated funds have been launched, with the funds seeking growth/expansion opportunities taking the lion’s share. Of the 12.3 billion yuan raised, 73% have been earmarked for growth/expansion situations, with investments in early stage technology companies taking up the residual portion.

Greater China Corner - Divestments

The Beauty of Being Quoted

Private equity-backed companies race to become public on various listing platforms

There has been no respite in the number of private companies seeking to become publicly-quoted stocks. Between 5th October and 2nd November, there were 11 initial public offerings in which private equity investors have had an interest, and they have successfully raised US$6 billion from the public. Despite fierce competition from NASDAQ and the New York Stock Exchange (‘NYSE’), the Hong Kong Stock Exchange (‘HKSE’) is clearly the most preferred listing venue, accounting for 74% of the funds raised, followed by NYSE which took up 23%, with NASDAQ accounting for the remaining 3%.

The bourses in the USA, which once commanded the lead in staging mega public offerings have now lost primacy to HKSE, the most active stock market in the Greater China region. In these 11 public offerings being surveyed, HKSE accounted for two of the largest floats while NYSE trailed in the third position Among these 11 private equity-backed companies, the largest public offering was SOHO China. It raised a staggering US$1.9 billion. A construction company in Beijing, on 8th October 2007 SOHO China received US$29.2 million from Standard Chartered Private Equity. At SOHO China’s initial public offering (‘IPO’), the private equity firm did not dispose of its holdings.

Bosideng International Holdings Ltd., (‘Bosideng’), which had invited HSBC Private Equity (Asia) to become its investor back in June 2006, was the second largest offering among these 11 companies. On 10th October, the winter coats maker made its debut on the HKSE, and raised HK$7.44 billion (US$953.93 million).

HSBC Private Equity (Asia), which had invested a total of US$70 million in Bosideng, sold a portion of its holdings and clocked an initial return of US$49.6 million to its coffers.

The NYSE narrowly defeated HKSE in hosting the third largest public offering among these 1. On 31st October, Giant Interactive Group Inc. (‘Giant Interactive’), one of China’s leading online game developers, was listed. Standard Chartered Private Equity agreed to subscribe to 1.63 million shares at Giant Interactive’s initial public offering price. The entire transaction committed by the global private equity investment arm of Standard Chartered Bank amounted to US$25 million. It did not dispose of its holdings in the online game operation.

Overall, private equity investors are entrenched in China’s growth story. Companies in construction businesses, such as SOHO China and China Aoyuan Property Group Ltd., and those in consumer goods, such as China Dongxiang (Group) backed by Morgan Stanley Private Equity Asia, accounted for over 61% of the US$6 billion raised at these public offerings, followed by the information technology sector that accounted for 19%.

In October, private equity investors have been able to record some of the most outstanding returns in Asian private equity during the period. Baring Private Equity Asia sold its entire holdings in Hidili Industry International Development Ltd. and clocked an additional return of HK$3.01 billion from this investment that spanned over 13 months. The private equity firm first committed an approximate US$42 million in equity capital to Hidili in September 2005 and sold 80 million shares at Hidili’s initial public offering. Baring Private Equity Asia is estimated to have recorded an aggregate return of US$421.51 million from this single investment.