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April 2009 Issue
In Brief

China's Quest to Advance Its position on the global stage could be interpreted as an act of protectionism, a feared subject at time of adversity Feature
Plights of Aozora and Shinsei shed light on how these two previous successful turnaround cases in Japan's banking industry, are paying the price of an aggressive expansion drive Analysis
Downsized but Not Out – 3i displays commitment to the region, albeit with lessened resources Focus
Fund Sponsors are Revising their investment blueprint as part of the cost-cutting measures Institutional Investors – Funds
Institutions Fund Green Energy as they define their latest mandate Institutional Investors – Investments
Caution Grips Investors as They commit to modest funds or deal sizes only General Section – Analysis
Yuan JV Funds in Vogue as foreign investors seek to advance further into the China market; while domestic partner seek to learn from their counterparts' expertise Greater China – Funds
Handsome Returns Add Glees to investors and gloss to the China market's allure Greater China – Divestments
Record Fall of Fresh Capital coming into India's private equity market that foreshadows slow down of investment activities in the country India Corner– Funds
Success Breeds Success – MphasiS demonstrates its ability to attract further private equity capital even though growth of India's BPO's industry is forecast to slow down India Corner– Investments
Content

Analysis
Focus
Institutional Corner
News
Funds
Investments

General Section
News
Analysis

Greater China
News
Funds
The Allure of Yuan
Investments
Divestments

India Corner
News
Funds
Limited Capital Pool
Investments

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

The Rising Wall

For half a century, world trade growth has been the backbone of rising prosperity. But for the first time in 25 years, it is falling. The burning subject, in the minds of global leaders that met at the recent London Summit of the Group of Twenty ('G-20 Summit'), is whether the current global financial ills would lead to the rise of trade barriers, in other words, protectionism. At the conclusion of the G-20 Summit, they issued their united statement in which they pledged to join forces to resist protectionism. Their communiqué also acknowledged “growing protectionism and a withdrawal of trade credit” that are fuelling the current decline in world trade.

Days before the G-20 Summit, two episodes which some market observers labelled as acts of protectionism were played out in full in Asia. The Australian government decided against allowing Aluminum Corporation of China Limited's proposed US$19.5 billion investment in Rio Tinto, an Anglo-Australian mining group. The proposed investment had stirred up such heated differing opinions Down Under that the opposition party to Prime Minister Kevin Rudd's government even endorsed an advertisement entitled “Keep Australia Australian”. Televised to the public of Australia, the message sought to raise its populace's awareness that the country's “source of wealth” cannot be bought by foreign governments.

Then, in China, Coca-Cola Co.'s proposed US$2.5 billion takeover of China Huiyuan Juice Group Ltd. ('Huiyuan Juice') was rejected by the Ministry of Commerce, citing the negative impact on fair market competition as one of the principal reasons. It was the first foreign takeover that met the red light under China's anti-trust regime that came into effect in August last year, only just a month before the world's largest bottler revealed its ambitious plans for China. This Ministry's decision ....

Greater China Corner - Funds

The Allure of Yuan

Foreign investors race to form yuan currency funds

US dollar denominated China-focused funds are increasingly being overshadowed by local currency funds. While capital today seems a rare commodity in the West, in China this does not appear to be the issue, as evidenced by the host of yuan-denominated funds being launched and their respective ambitious target fund sizes.

In late March, the largest joint venture yuan-denominated fund to-date was unveiled. Success Universe Liaoning SME Industry Fund ('SME Industry Fund') has a staggering target size of 10 billion yuan (US$1.46 billion). To be managed by the Hong Kong-based Success Universe Fund Management Co. Limited ('Success Universe Fund Management'), as indicated by its name, SME Industry Fund has the mandate to support small and medium businesses located in the Liaoning province. Significantly, it is the first joint venture fund to garner the full support of the Liaoning provincial government. The latter was quite specific that it has entrusted SME Industry Fund to invest solely in companies with a focus on sectors like energy, mining resources and land development (fig. 32).

As the momentum for setting up yuan-denominated funds gathers pace, the Tianjin government displayed its savvy business acumen in partnering with the Netherlands-based asset management firm Robeco Group as it ventures into the sustainable investment segment. They have recently formed a joint venture investment company, Robeco TEDA (Tianjin) Investment Management Company. The latter will not only serve as a platform for both sponsors to seek opportunities in China, but will also be the entity that will launch a yuan-denominated fund with a target fund size of 5 billion yuan. To be known as Robeco TEDA Sustainable Private Equity Fund, it will have a fund life of seven years, and will invest in companies that are developing green products and technologies with a focus on Tianjin.

Rebeco has an established profile in sustainable investment. In December 2006, it acquired a majority stake in the SAM Group, one of the earliest fund management firms that focuses on sustainable investing. Rebeco has formed a strategic alliances with SAM Group to invest in the water market as well as climate-related products and services.

Two Silicon Valley-based venture capital investment firms are also on the trail to form their respective maiden joint venture funds. Early in the month, GSR Ventures, which is the China partner of Mayfield Fund, teamed up with the Nanchang government to announce the formation of GSR LED Industrial Fund. With a target fund size of between 400 million yuan to 500 million yuan, the fund will focus on the LED industry. At this initial juncture, the Nanchang government has already earmarked 100 million yuan for the fund, while GSR Ventures will put in no less than 300 million yuan.

On the heels of GSR LED Industrial Fund announcement, another well-known name in Silicon Valley, the SVB Financial Group, also revealed its intention to enter the yuan fund arena. The holding company of Silicon Valley Bank, SVB Financial Group has sealed an agreement with the Shanghai Yangpu District Government in which a joint venture guidance fund management firm and a venture capital fund are on the drawing board.The proposed guidance fund will be led and sponsored by the SVB Financial Group, and will focus on investing in technology-focused small and medium enterprises.

Following this agreement, Silicon Valley Bank is going to set up a Shanghai representative office in the Yangpu District.

In this early stage of attracting foreign investors to set up joint venture yuan-denominated funds, China's sponsoring institutions have left no illusions about their objectives by clearly spelling out the investment objectives of each such fund.

India Corner - Funds

Limited Capital Pool

India witnesses massive contract of funds

Twelve months is indeed a long time, especially for the Indian private equity industry. In the first three months of the year, India welcomed US$343.3 million in fresh capital, a far cry from the US$1.75 billion that it recorded for the same period 12 months ago (fig. 40). Unlike China, where the local provincial governments have been actively setting up funds, in India such initiatives are conspicuously absent. Significantly also, investors appear to have recoiled from making allocations to infrastructure funds, which had been central in India's 2008 fund pool profile.

So far, any role to help promote India's private equity industry by government-linked organisations has been relatively unnoticeable. NASSCOM, the national body for the country's information technology industry, has launched the NASSCOM-ICICI Knowledge Park Innovation Fund with a target size of up to US$50 million, but has only been able to secure less than US$10 million in commitments by investors. For India to help groom its aspiring pool of fund managers, more efforts are needed.

Even though fund raising is an illusory dream, India's private equity fund managers are seem in accord that the ideal fund size range would be between US$100 million to US$250 million. Of the handful of funds that have been launched during the first three months of the year, two-thirds of them fall within this range. In fact, independent fund management firms are confident of being able to meet such target sizes. Avigo Capital Manager's latest fund, Avigo SME Fund III, has a target size of US$250 million and has already secured US$150 million at its first closing. This, compared to the corporate venturing fund of the Indian conglomerate behemoth, Aditya Birla Group, is an outstanding achievement. Aditya Birla Private Equity Fund also has a target fund size of US$250 million. So far, it has garnered US$100 million in commitments.

With limited capital, the coming months may be a defining time for the Indian private equity industry, as investors embark on a cautious capital deployment road.