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August 2009 Issue
In Brief

Green Investing Colours Private Equity investment landscape as clean technology is the focus of a recent US-China Dialogue Feature
Quest for Scholastic Achievement fuels capital deployment to the education sector in Asia’s quest for better education Analysis
LPs and GPs Seek Solutions for a Vietnam fund that witnessed a rapid decline in value Institutional Corner - Analysis
Budding Secondary Market Attracts commitments from institutions Institutional Corner – Funds
SE Asia Sees Increased PE Momentum as the region experiences a period of political and economic stability General Section - Analysis
Macquarie’s MAp Sets a Precedent in the fund management industry following its recent management and fee restructuring General Section – Funds
Sale of Nikko AM Points to the importance of patience when disposing assets in Japan General Section – Divestment
India Infrastructure Draws Capital as New Delhi seeks to improve the country’s infrastructure India Corner – Funds
Industries Tied to India’s Progress attract the interest of investors India Corner – Investments
Content

Analysis

Institutional Corner
News
Analysis
Funds

General Section
News
Analysis
Tropic of Capital
Funds
Divestments

India Corner
News
Funds
Investments
Investing for the Future

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

Green Agenda

T hey met, they shook hands and agreed to co-operate on clean energy technology to improve the worsening global climate situation. At the recent US-China Strategic and Economic Dialogue (‘Dialogue’), the first major meeting between the US and China since President Barrack Obama took office, clean energy was a dominant issue. The memorandum of understanding signed at the Dialogue underscores the pressing need for an immediate reduction of carbon emissions. China and the USA are the world’s two biggest carbon emitters, with each accounting for roughly one fifth of the world’s total. Their ability to cooperate in working toward a cleaner global environment will dictate the future of the “energy economy”. According to a June 2009 report by the Technology Industry and Economics Division of the United Nations’ Environment Programme (‘UNEP’), the energy economy is taking shape and is soliciting increased commitments from investors. In 2008, some US$155 billion was invested in clean energy companies and projects worldwide, excluding large hydro projects. The amount represented a more than four-fold increase since 2004. The green theme is catching on, with an increasing number of private equity funds being launched to seize this emerging set of opportunities.

Green Fund Pool

Clean technology or environment-focused funds were first launched by private equity investors as far back as 2003. The movement did not gather pace until 2007 when such funds have been able to raise sizeable capital. Since then, clean tech funds have secured over US$841.6 million. Country-focused clean tech funds are more prevalent than those seeking opportunities across Asia. China’s green technology fund pool is the largest, commanding an aggregate US$415 million. This is followed by South Korea, described by the UNEP report as the “greenest” of all, where a US$212.4 million fund pool is known to be dedicating to make clean tech-related investments. Pan-Asia funds ranked third and added up to around US$116 million....

General Section - Analysis

Tropic of Capital

Investment activities flourish in a calmer SE Asia

The month of July witnessed a number of critical developments in Southeast Asia. Indonesia, Asia’s sixth largest economy, completed its latest election, returning President Susilo Bambang Yudhoyono to office. In Malaysia, Prime Minister Najib Razak completed his first 100 days in office and has already implemented a series of measures said to be conducive to foreign direct investment.

After years of relative economic and political stability, Southeast Asia is beginning to inspire investors’ confidence. The UK-based CDC Group, one of the most steadfast investors of Asian private equity funds, is known to be directing resources to the Mekong region. Despite the economic uncertainty that shrouded the globe during the first half of the year, in Southeast Asia, private equity activities have been far from subdued during the past few months.

Malaysia

Malaysia has emerged as one of the most favoured investment destinations on the Asian private equity map in 2008. It boasted a transaction total of US$2.2 billion, due in large measure to government-linked investment activities.

In July, Khazanah Nasional Berhad (‘Khazanah’), an investment arm of the Malaysian government, made a strategic investment abroad. Along with Malaysian Technology Development Corporation Sdn. Bhd. (‘MTDC’), a government-backed venture capital fund management firm, it participated in the US$108 million fund raising exercise undertaken by the US-based Small Bone Innovations, Inc. (‘SBi’), a specialised orthopaedics company. Khazanah is known to have committed US$25 million, but the commitment from MTDC is unknown.

In this transaction, the Malaysian investors partnered with Goldman Sachs Group, Inc. and the Family Office of Bahrain, as well as Trevi Health Ventures. SBi will set up its Asia Pacific hub in Kuala Lumpur once the investment is consummated.

Prime Minister Najib Razak is demonstrating his government’s readiness to take on a much larger role in promoting the venture capital financing model among the country’s small and medium-sized enterprises (‘SMEs’), especially those in the technology-sector. In one of the boldest moves undertaken by an Asian government, Malaysia recently unveiled a 10 billion ringgit (US$2.8 billion) direct equity fund to be known as Ekuiti Nasional Berhad. The government will seed this fund with an initial 500 million ringgit and will also sponsor the launch of the fund management firm. In line with the recent reform of long-standing affirmative action policies, in which there will be a more even distribution of both Bumiputera and non-Bumiputera interests in companies, Ekuiti Nasional Berhad will seek opportunities in both categories of companies.

Coinciding with the launch of Ekuiti Nasional Berhad was the announcement from CIMB Standard Strategic Asset Advisors Pte, Ltd. that it was appointed as manager and advisor of the US$500 million Islamic Infrastructure Fund. Sponsored by Asian Development Bank and Islamic Development Bank, with each subscribing US$125 million, the Islamic Infrastructure Fund will seek opportunities in Asia’s emerging markets and is one of the first infrastructure funds that is Shariah-compliant. At a time when institutional investors remain cautious in making allocations, the Islamic Infrastructure Fund speaks to the infrastructure investment expertise in Malaysia and its close ties with Islamic investors.

Singapore

In 2008, Singapore encountered its worst recession in recent years. With its gross domestic product expected to contract 5.0% in 2009, the Lion City is jump-starting its venture capital investment activities. Last year, the National Research Foundation selected six fund managers and invested each with S$10 million (US$7.3 million) in matching funds. Among those selected was Walden International, one of the longest-serving venture capital investment firms in Asia. Earlier in the year, Walden International announced the final closing of this fund, for which it successfully raised S$20 million. Fund investors appeared to have responded well to the National Research Foundation’s initiative. Upstream Ventures, another selected fund management firm, is expected to announce the first closing of its fund under this scheme.

There is also the SPRING Singapore programme that is mandated to nurture small and medium enterprises in Singapore. Through its SPRING SEEDS Capital Pte Ltd (‘Spring Seeds’), SPRING Singapore will co-invest in Singapore-based companies with three venture capital funds on a matching dollar basis, up to S$1.5 million per company. SPRING Singapore has identified three fund management firms as its co-investment partners: Sirius Venture Consulting Pte Ltd. (‘Sirius Venture’), BAF Spectrum Pte Ltd and Accel-X Pte Ltd. In July, Sirius Venture made its maiden investment with Spring Seeds when it jointly committed S$1.2 million in Transmex Systems International, a tracking and security related information technology solutions provider.

Indonesia

Indonesia is expected to soon join the BRIC (Brazil, Russia India and China) economy. Goldman Sachs is forecasting that while the world economy will contract by 1.1% in 2009, BRIC economies will grow by an average of 4.8%, with China projected to grow 8.3% in 2009 and 10.9% in 2010. In the next two decades, the BRIC economy could overtake developed world economies. The inclusion of Indonesia underscores the economic prowess of this nation that has enjoyed relative political and economic stability during the past few years, though the recent bomb attacks at two foreign hotels in Jakarta is cause for concern.

In 2008, foreign private equity capital was beginning to return to Indonesia. TPG, through its local affiliate, Northstar Pacific Partners (‘Northstar’), committed US$575 million to PT Bumi Resources Tbk (‘BUMI’). In this transaction, Indonesian conglomerate PT Bakrie & Brothers Tbk and Northstar established a 70:30 joint venture that would own 21.4% of BUMI. Consequently, the conglomerate’s US$1.2 billion debt had been halved to approximately US$621 million. The transaction was one of the largest commitments by foreign investors in Indonesia in recent years.

Significantly, in June this year, the US-based hedge fund, Farallon Capital Management LLC (‘Farallon’) completed its divestment in PT Bank Central Asia (‘BCA’). The exit has not only concluded one of the longest-held foreign investments in an Asian bank, it also represents one of the best exit performances by an investment firm. In 2002, Farallon invested US$520 million in BCA. Subsequently in 2007, the investment firm sold a majority of its holdings and is estimated to have returned more than US$2 billion to its coffers. In its final phase of divestment in June, Farallon is estimated to have logged an additional US$329 million in disposing of its remaining shares in Bank Central Asia (fig. 18).

Comments

The economic downturn failed to stifle investors’ venturous spirit for Southeast Asia. During the first half of 2009, a host of funds that target new markets in Southeast Asia have been launched, suggesting investors are confident that economic stability will continue in the region. In Vietnam, International Finance Corporation (‘IFC’) continued its successful divestment in Sacombank. The multilateral financing institution invested an aggregate US$25 million in Sacombank from 2002 to 2007. It began its divesture activities at the beginning of 2008. By the first month of 2009, IFC had recovered its cost and continued to retain a stake of more than 4% in the bank. Cambodia scored two funds, while Sri Lanka will soon witness its first fund since the start of its 24-year long civil war which recently culminated in a ceasefire. The recent bombings at two foreign-owned hotels in Indonesia, while horrific and potentially destabilising, did not appear to trouble investors as the Jakarta stock market did not register any immediate declines. The opportunities in the market appear to outweigh the risks.

India Corner - Investments

Investing for the Future

Investors deploy capital for the benefit of India

Education is a necessary ingredient for social and economic progress in India. The country’s minister of human resources development, Mr Kapil Sibal recently said that he hoped to attract some of the leading education institutions of the West to India. The idea of providing better education to those seeking to improve their quality of life and business skills has caught on. In recent weeks, a number of investments have been made in education services companies.

One of the largest investments made in this sector was Matrix Partners India’s 1 billion rupee (US$20 million) investment in FIITJEE Limited (‘FIITJEE’). FIITJEE provides training for several domestic engineering certification examinations, including IIT-JEE and AIEEE. It also provides schools for K-12 students and administers scholastic aptitude tests for admissions to US universities.

Franklin Templeton Asset Management (India) Private Limited chose the education services sector for one of its first investments after successfully closing its private equity fund last year. Through its Franklin Templeton Private Equity Strategy, a 6.3 billion rupees fund, the India arm of the US-based fund management firm has invested 500 million rupees (US$10.4 million) in Career Point Infosystems Limited (‘Career Point’). The transaction was advised by Darby Overseas Investment Limited, the private equity arm of Franklin Templeton Investments.

Based in Rajasthan, Career Point provides entrance test preparation for engineering students at over 29 learning centres. It is also planning to enter the general education market.

Joining the list of investors in the education space is Helix Investments, which has taken an equity stake in Mumbai-based LearningMate Solutions Pvt. Ltd. (‘LearningMate’), an e-learning education solutions provider. The transaction amount is estimated to be US$10 million, according to local reports. The company sells its applications to education publishers, online schools, universities, government agencies and non-profit organisations. This is the second time that LearningMate has received funds from private equity investors. Back in 2003, it first secured capital from The Carlyle Group.

Earlier, Milestone Religare Investment Advisors Pvt. Ltd. (‘Milestone Religare’) confirmed that it was close to sealing a 350 million rupees investment in the Institute of Management Studies, a provider of education in management sciences, tourism, information technology, bio-science and engineering science. It has three campuses, all located in Ghaziabad, and has approximately 2,000 students.

Milestone Religare is among the first to launch a fund with a focus on the education sector. Its India Build-out Fund I, established earlier in the year, has a target size of 6 billion rupees.

IDFC Private Equity is reportedly aiming to make its second investment in the education space. It could deploy US$15 million in Manipal Universal Learning Private Limited, an education company that offers a variety of courses in various fields, including management and engineering. IDFC Private Equity first invested in the education sector in 2006.

For India, the job of educating its growing young population is daunting. According to the University Grants Commission, about 35% of India’s 1.2 billion population is between 20 to 25 years old, but only 9% of this age group has enrolled for a college degree. For those who can afford tertiary education, most prefer to be educated overseas. The Ministry of Overseas Indian Affairs indicated that the US remains the most popular destination for Indian students; over 104,555 of its nationals are currently studying there. This is followed by Australia, which has 97,035 overseas Indian students.

Outside of the education sector, investors are making commitments to various industrial sectors which they believe will receive strong support from New Delhi. With the government aiming to build 50 new ports across the country in the next five years, the India investment arm of the Swiss-based BTS Investment Advisors Ltd. is seizing this opportunity and has recently invested 250 million rupees in shipping company Caravel Logistics Pvt. Ltd.. The latter provides shipping services, including ocean freight shipments, receiving and warehousing, export packing, documentation management and customs clearance. The investment was made through BTS India Private Equity Fund.

For the German-based Siemens Venture Capital (‘SVC’), the focus is on bolstering its environmental portfolio. SVC has recently added the India-based Transparent Energy Systems (‘TES’) to its portfolio. The energy recycling company is hoping to use the new capital to expand its operations in energy and waste-heat recovery systems. The transaction sum was not disclosed.

SVC is making this investment for financial gains. In 2008, its parent organisation, Siemens AG, generated over a quarter of its €19 billion (US$26.5 billion) from environmental-related products. TES could potentially be one of its star performers.

The green movement is catching on. In Bangalor, Reva Electric Car Company (‘Reva’), backed by Draper Fisher Jurvetson and Global Environment Fund, is planning to build the world’s largest factory for the manufacture of green automobiles. Known for its four-seat electric car powered by eight six-volt batteries, Reva is planning to invest 300 million rupees in the new manufacturing facility. Reva, which began production in 2001, sells its green cars for 350,000 rupees. It reportedly sold 500 cars last year in India and the UK, and has set the target number to 2,000 units for this year.