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December 2007 Issue
In BriefThe King is Rebuffed as PE, King of Capital, suffers set backs during the year Feature
Sovereign & Government Funds are re-shaping the Asian private equity landscape Analysis
Aussie Funds are Going North to capture opportunities in the region Funds
Sale of Hanaro Proves Seoul’s appeals Divestments
A New Breed of Investors are emerging in China that portrays a new competitive scene Greater China – Funds
Niche Funds is the Latest Approaches adopted by foreign investors Greater China - Funds
Domestic Players Write Big Cheques that rival their foreign counterparts Greater China - Growth/Expansion
A-shares Market is Integral to the overall China investment structure Greater China – Divestments
Bourses in the USA Attract a long list of China plays Greater China – Divestments
India’s BPO Bellwethers are expected to ride out of the credit squeeze storm India Corner– Investments
Buyouts Momentum in India continues, albeit with an international twist India Corner – Buyouts
Foreign Investors Dominate large deals in India India Corner – Growth/Expansion
Shinsei Turns to Its Creator for new lease on life Japan Corner - Growth/Expansion
Content
Analysis
Pan Asia
News
Funds
Buyouts
Changed Dynamics
Growth/Expansion
Divestments
Greater China
News
Funds
Growth/Expansion
Venture Capital
Divestments
Where the Eagles Fly
India Corner
News
Funds
Investments
Buyouts
Growth/Expansion
Divestments
Japan Corner
News
Buyouts
Growth/Expansion
People on the Move
Summary
Index & Exchange Rates
Messages
It was a year of dramatic changes for the private equity industry. The favourable tide that propelled private equity to become the King of Capital turned against the industry in April, when the high profile bid for Qantas Airways Ltd. collapsed. Months later, the long shadow of the US subprime loan crisis began to cloud buyout investors’ prospects to clinch deals, as banks tightened credit. The “cove-lite” leverage structure was quickly obliterated from financiers’ term sheet. As private equity recorded an unprecedented number of stalled or failed buyout deals, the industry’s heavy weights embarked on vigorous public relationship campaigns in hopes of mending private equity’s faltering image. In late November, a detailed survey of the buyout industry was submitted to the European parliament that raised questions on the actual performance of private equity and its purported value to invested companies. The incessant blows that have been directed to private equity, from various segments of the public during the year, is a sombre dosage of reality on how swiftly the wheel of fortune has now turned against the private equity industry.
Waltzing Matilda
Australia is the ultimate illustration of the level of volatility that private equity in Asia is just beginning to experience. In 2006 Down Under was the most-favoured destination for buyout investors. With US$14.3 billion of deal value being recorded in the 12 months ending December last year, Australia led all other markets in the region. In its 2006 buyout deal list, “failed” transactions were sparse, if any. Even the government played a central role in fuelling buyout momentum when its policy makers motioned the liberalisation of the country’s media industry in the last quarter of 2006. The deregulation set off a flurry of buyout activities in the media sector. Both CVC Asia Pacific and Kohlberg Kravis Roberts & Co., claimed ownerships of two of the most prized media assets in Australia. The US$3.46 billion PBL Media transaction and the US$2.54 billion Seven Media Group were instrumental in bolstering Australia’s status as the leading buyout deal market by value during 2006.The winds that blessed the Australian buyout market did not ...
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.
Pan Asia - BuyoutsChanged Dynamics
Buyout investors face formidable hurdles in Australia and New Zealand
To private equity investors, especially those in the buyout segment that are vying for opportunities in both Australia and New Zealand, the market dynamics in these two countries have now changed. They are no longer favouring financial investors, even though their coffers are rich with cash.
After more than three months of arduous effort, both Archer Capital and Ironbridge Capital now will have to find another deal to deploy the A$1.15 billion (US$1.03 billion) that they had reserved for the acquisition of the consumer and pharmacy units of Symbion Health Ltd. (‘Symbion’). Following a ruling by the Australian Tax Office, Symbion announced that the merger with Healthscope Ltd. will not proceed. The ruling had effectively blocked the sale of Symbion’s consumer and pharmacy units to the buyout investors.
The Australian Tax Office ruled that Symbion “cannot benefit from scrip-for-scrip CGT rollover relief” in the latest proposed takeover scheme by both Healthscope and the private equity investors. In the latest offer by Healthscope, inclusive of the transaction sum to be committed by both Ironbridge Capital and Archer Capital, it placed Symbion’s value at A$2.87 billion, compared to the A$2.9 billion earlier offered.
At the same time, the Canada Pension Plan Investment Board’s bid for Auckland International Airport Ltd. (‘AIAL’) is now locked in an impasse. Following AIAL’s public statement that discussions with the Canadian institution has been terminated, the latter has decided to revise the deal structure and substantially increase its equity commitment as its latest attempt to assume an equity stake of between 39% and 49% stake in New Zealand’s busiest airport. The transaction would have commanded an estimated A$1.79 billion, if proceeded.
In 2006, both Australia and New Zealand led all other markets as the most favoured buyout destinations. Together, they commanded a combined US$16.0 billion in deal value, exceeding Japan, the second most-favoured private equity market in the year, by 31.3%. But the tides turned during the year. Both Australia and New Zealand suffered an unusual high number of “failed” buyout deals, at eleven. This is an alarming development especially when 2006 was a blissful year to buyout investors, in which there was virtually no record of abandoned deals. At the beginning of December, there were eight buyout deals that aggregated to US$4.8 billion with “pending” status attached to them. This development highlights a rather volatile Asian buyout market where deal consummation has become a taxing task, and where unexpected hurdles could emerge at any time.
Despite this increasingly rugged buyout terrain, CHAMP Private Equity is resolute in adding another deal to its buyout portfolio. It has recently submitted a non-binding proposal to acquire all outstanding shares in Nylex Ltd.. The latter is listed on the Australian Stock Exchange and distributes plastic-based products. CHAMP Private Equity is offering A$2.65 for each of the target company’s shares, as well as outstanding convertible notes paying A$0.81 for each option. The entire transaction would represent a deployment of A$150 million. CHAMP Private Equity has been granted an exclusive period to undertake due diligence and negotiate a bidding agreement. This will expire on 31st January 2008. Hopefully, CHAMP Private Equity can break the hex that has frustrated a long list of buyout deals from being consummated.
Greater China Corner - DivestmentsWhere the Eagles Fly
Bourses in the USA are recording vibrant listings of China stocksWhile China’s A-share market has proven to be the listing platform for the country’s state-owned enterprises, the two main bourses in the USA have proven to be the magnet for those privately-owned companies that are seeking public company status. In the first eleven months of the year, there were 77 exits that were made through initial public offerings., the bourses in the USA have captured 23% . In recent weeks, the list of companies coming from China seeking listings on either bourse has been long, with the New York Stock Exchange (‘NYSE’) being the favoured venue.
The Big Apple Exchange
Giant Interactive Group Inc. (‘Giant Interactive’), one of China’s leading online game developers, was the largest offering with the backing of private equity capital. It raised US$886.6 million on the NYSE. On its first day of trading, Giant Interactive’s share price surged to close at US$18.23, a 17.6% rise compared to its offer price of US$15.5 each. The online game developer had earlier received US$25 million from Standard Chartered Private Equity, which subscribed to 1.63 million shares at Giant Interactive’s initial public offering.Goldman Sach’s China Nepstar Chain Drugstore Ltd. (‘China Nepstar’) also made its debut in November. The largest retail drugstore chain in China, with 1,791 directly operated stores located in 62 cities across China, its debut on the NYSE was a display of investors’ absolute confidence on the future prospects of the drug retailer. It raised US$334 million, well exceeded the originally proposed US$250 million.
But not all public offers encountered a feverish response from investors. Agria Corporation (‘Agria’), a fast-growing China-based agri-solutions provider engaged in research and production of upstream agricultural products, saw its share price fall on its first day of trading by as much as 26.8%, despite the fact that the company reported a US$34 million net income for 2006.
Agria’s partnership with private equity investors was relatively young. In June 2007, TPG Ventures invested US$36.0 million in the company. Neither investors disposed of their holdings at Agria’s initial public offering.
NYSE will celebrate Christmas with a strong Chinese flavour, as there is a long list of companies from the Middle Kingdom that have already indicated their intentions to have their public addresses at the bourse. Among them are WSP Holdings Ltd., a leading Chinese manufacturer of equipments used for oil and natural gas exploration, drilling and extraction. It aims to raise US$200 million. Earlier, WSP Holdings had received funds from Actis plus a consortium of hedge fund investors. The financial investors have subscribed to two rounds of financings and committed an aggregate US$65 million.
The Technology Platform
NASDAQ is also looking forward to a busy and rosy period, as a number of technology-related companies from China have also filed their listing prospectuses. In the queue to become quoted are CGEN Digital Media Company Ltd. (‘CGEN’), VisionChina Media Inc. and Ltd., Vance Info Technologies Inc., as well as ChinaEdu Corporation. All had earlier received funds from private equity or venture capital investors. These four companies are hoping to raise an approximate US$370 million in aggregate from the public.In the meantime, Airmedia Group Inc. (‘Airmedia’) became a quoted stock on NASDAQ in early November. Airmedia is a digital media network in China with its core operations being air travel advertising. Through this public offering, Airmedia raised US$225 million from global investors.
Airmedia received the attention of a prestigious list of investors since October 2005. CDH Investments, Och-Ziff Capital Management Group LLC and SIG China have committed a total of US$62 million to Airmedia.