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January 2009 Issue
In Brief

Commitment and Will to Sail Through the current storm is the key as the industry faces a testing year ahead Feature
Optimism and Confidence Prevail as experienced players assess implications of the current meltdown Perspectives
An Unprecedented Decision by a LP underscores allocation issues facing the institutional community Institutional Corner - Analysis
Secondary Activities Taking Shape in China Institutional Corner - Divestments
Against all Odds, Asian Funds Closed that shows the allure of Asia General Section - Funds
Buyout Investors Take on New Role as illustrated in the Akindo deal General Section – Investments
MYOB Shows Valuation is Down as its investors pay less General Section – Investments
Partnership Remains a Novelty in China Greater China – Analysis
Winds of Consolidation Begins as evidenced by merger of SINA and Focus Media Greater China - Investments
Returns of CGEN Fall Prey to prevailing adverse market conditions Greater China - Divestments
Foreign Interest Continues to Fuel growth of Indian funds India Corner - Funds
Unlisted Companies Attract Funds from investors India Corner - Investments
Content

Perspectives
Institutional Corner
News
Analysis
Funds
Divestments

General Section
News
Funds
Investments
Glowing Lights

Greater China
News
Analysis
Investments
Divestments

India Corner
News
Funds
Investments
Growing in Private

People on the Move
Subscriber Weekly Summary
Summary
Stock Watch
Index & Exchange Rates

The Resilient

By all accounts, 2008 was an exceptional year. In tandem with global events, while Asian private equity enjoyed exhilarating growth in first half of the year, it encountered unprecedented and accelerating corrective movements as the year end drew closer. Differing from the past, a steely will to better the prevailing adverse market conditions now prevails in the industry.

Committed

As the winds of the global financial storm howled hard, a number of fund management firms have decided to conclude fund raising activities for their latest funds. Yet there are clear indications that institutional investors remain staunchly supportive to their chosen general partners.

In early December, when stimulus package after stimulus package had been announced by world leaders for their respective countries, the partners at HSBC Private Equity (Asia) Limited, one of the oldest names in Asian private equity, announced the final closing of their latest fund, HSBC Private Equity Fund 6 L.P. It has attracted an institutional commitment of US$1.47 billion, well over its original target of US$1.25 billion. Although a significant portion of the fund was committed in the first half of the year well before the collapse of the Lehman Brothers in October, it is nonetheless a commendable feat by the fund management firm and is an emphatic confirmation of continuous institutional interest in Asian private equity.

There was also the second fund of the two-year old independent fund of funds management firm, Asia Alternatives Management LLC. Its Asia Alternatives Capital Partners II, LP (‘AACP II’) attracted US$950 million ...

General Section - Funds

Glowing Lights

Asian funds achieve closings against all odds

Private equity in Asia showed a measure of resilience, despite enduring a year of extreme turbulence in the financial industry. In the 12 months ending December, US$47.8 billion of fresh capital is known to have come into the region. This, compared to the US$40.9 billion for 2007, is a growth of 16.8%.

The host of funds that managed to achieve their final closings just prior to the year end further testified that there is no waning interest from institutional investors in Asian private equity, in particular, the final closings of two billion dollar pan-Asian funds. Together, they added an additional US$2.67 billion into Asia’s fund pool. They were the latest funds for CCMP Capital Asia and HSBC Private Equity (Asia) respectively.

CCMP Capital Asia has raised US$1.2 billion for its latest Pan-Asia focused buyout fund, Asia Opportunity Fund III, L.P., which attracted a prestigious list of institutional investors including Goldman Sachs Private Equity Partners Asia, the Ontario Teachers’ Pension Plans and the State of Michigan Retirement System.

The new fund will continue its predecessor fund’s focus on acquiring controlling stakes in mid-to-large market companies in the region, with a further focus on the consumer & retail and industrial manufacturing and services sectors.

The final closing of Asia Opportunity Fund III, L.P. bears new significance to the management team of CCMP Capital Asia. It will not only bring CCMP Capital Asia’s aggregate fund pool to US$4 billion, but will mark the beginning of a new chapter for the buyout fund management firm. It will be renamed as Unitas Capital when its affiliation with the US-based CCMP Capital Advisors LLC ends on January end, 2009.

Joining CCMP Capital Asia in celebrating the final closing of their latest fund was HSBC Private Equity (Asia). Its management team must be proud that its latest regional fund, HSBC Private Equity Fund 6 L.P. (‘HPEF6’), has successfully secured over US$1.47 billion of committed capital from global institutions. With an original target size of US$1.25 billion, the oversubscription to HPEF6 is an emphatic pledge of support from institutional investors to one of the oldest names in Asian private equity.

In addition to the US$350 million coming from the parent company, HSBC Holdings Plc, among HPEF6’s long list of investors is Pennsylvania Public School Employees’ Retirement System which allocated US$200 million to this fund.

HPEF6 will continue to seek growth, expansion and buyout investment opportunities in mid-market companies located in Greater China, South Korea, Southeast Asia and India. It will focus on deal sizes that range between US$40 million to US$150 million.

At the same time, Silicon Valley-based Mayfield Fund joined these two pan-Asian fund houses when it announced the final closing of its first fund for India, Mayfield India I LP, which raised US$111 million. The new fund, which focuses on mid-market technology, consumer and infrastructure companies with a deal size between US$8 million and US$10 million, has already logged three deals.

On a global scale, the UK-based Actis announced the final closing of its latest emerging markets focused fund, Actis Emerging Markets 3 (‘AEM 3’), which raised US$2.9 billion, exceeding its original target of US$2.5 billion. It is one of the largest funds raised for emerging markets. Both China and India will benefit from this global fund, as a portion of the capital pool will be directed to these two major economies in Asia.

But not all fund managements have been able to raise their glasses and celebrate successful fund raising activities. The Asian direct investment arm of the French financial institution, Natixis, has decided to suspend its fund raising activities. NPEA Capital, the Asian private equity arm of Natixis, was raising a US$200 million fund that focuses on Greater China. According to sources, the fund management boasts illustrious investment results, especially in the solar energy sector. While NPEA Capital was unreserved in making known of obstacles that it encountered in raising its latest fund, many have quietly aborted their fund raising activities. The final closings of the aforesaid funds have nonetheless given others hopes and reasons to wait for a better tomorrow to raise their funds.

India Corner - Investments

Growing in Private

Growth companies continue to receive funds

In a market known for its lack of buyouts, growth companies in India continue to receive capital injections, albeit at much slower rhythm compared to the past. In the weeks leading up to the end of 2008, private equity investors both foreign and local have been busy logging in deals. Significantly, investors are focusing on the assets of unlisted companies (fig. 33). However, it is the energy-related industrial sector that appears to command the power to convince investors to loosen their purse strings.

Morgan Stanley Private Equity Asia (‘MSPEA’) demonstrated its absolute faith in the future prospects of India when it announced its maiden investment in the country. It has allocated 1.82 billion rupees (US$38.5 million) for a significant minority stake in Biotor Industries Ltd. (‘Biotor’), which was formerly known as Jayant Oils and Derivatives Ltd. Biotor is the largest integrated manufacturer of castor oil and castor derivatives in the world. It produces over 75% of the global castor crop. According to market sources, MSPEA will subscribe to convertible preference shares that represent an equity stake of approximately 30% in Biotor.

In addition to the “exceptional management teams and unique competitive advantages” of Biotor, elaborated Mr Chin Chou, managing director and head of the MSPEA, the investee company is expected to command a key role as the world seeks alternative energy. Castor oil and its derivatives are in strong demand as they are used in renewable, biodegradable and sustainable chemicals.

ePlanet Ventures, an affiliate of Draper Fisher Jurveston, has also made an investment in a business that is closely linked to the crop sector. It has earmarked 250 million rupees (US$5 million) for Sree Ramcides, which manufactures crop protection chemicals such as herbicides and pesticides in addition to nutrients and growth regulators in order to increase crop yields.

India’s domestic fund management firms are showing their readiness and ability to fund transactions that are similar in size to those engaged by their foreign counterparts. At the time MSPEA inked its deal with Biotor, the key domestic player of infrastructure investments, IDFC Private Equity (‘IDFC PE’), also made known its latest commitment. It has earmarked 2 billion rupees to Deepak Cables (India) Ltd. (‘Deepak Cables’), a leading player in India’s power transmission and power space. Earlier, Deepak Cables raised 850 million rupees in a round led by UTI Ventures.

IDFC PE’s commitment to Deepak Cables came on the heels of its recent deployments to a number of operations in the country’s energy sector, including SE Forge Ltd. and Moser Baer Photo Voltaic Ltd.

As the SENSEX falls, dropping to levels not seen since late 2005 and early 2006, investors holding public stocks face painful adjustments in the value of their portfolios. The traditional long-term equity investment in growth and unlisted companies are set to return. It is also a time that will test the core investment skills of private equity investors.