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May 2010 Issue
In Brief

A Manager’s Grievances exposed in full when he files a writ against his former employing organization, a leading Wall Street financial institution Feature
FOFs Consolidation Continues as fallout from global financial crisis has yet to stop Institutional Investors – Analysis
Asia’s Institutional Funds display their global ambitions in buying assets abroad Institutional Investors – Investments
Taking Control of UCOM is one step closer to potential exit for its private equity investor General Section – Investments
A Rare Reverse Takeover sheds light on an exit strategy employed General Section - Investments
A Basket of Deals Could Be Sold that underscores exit momentum in Australia and SE Asia markets General Section - Divestments
Grocery Shopping with Daiei has been less than satisfactory for its private equity investors General Section – Divestments
Indian Promoters Favour PE Investors to grow their business as evidenced through two recent major deals India Corner – Investments
Deal Dynamics Not Driven by capital but by market appetite and regulators India Corner – Investments
Divestment Gains Momentum as listing abroad and sales of assets are taking place India Corner – Divestments
Content

Analysis

Institutional Corner
News
Analysis
Funds
Investments

General Section
News
Investments
Divestments
In the Market

India Corner
News
Analysis
Investments
Divestments

Subscriber Weekly Summary
Summary
Index & Exchange Rates

The Plight

It is a natural evolution. For aspiring fund managers who have gained experience from their employing organisations, pursuing independent status in order to manage their own funds is often the next step. Few would have the unique experience of having first worked with an institution-backed fund, and then ventured into setting up his own fund management firm before rejoining another institution. Mr Varun Bery, former managing director of JPMorgan Private Capital Asia Advisors Ltd., is among those who has just completed such a journey. His departure from his former employing institution was, however, an acrimonious affair. On 19th April, through his legal counsel, Mr Bery filed his complaints against his former employer in the High Court of the Hong Kong Special Administrative Region (fig. 1).

Opportunity in Crisis

Mr Bery commenced his journey with Asian private equity fund management in 1995 when he was an investment director at the infrastructure fund unit sponsored by Peregrine Investment Holdings (‘Peregrine’), then Asia’s largest investment banking house outside of Japan. Peregrine collapsed under the weight of debt in 1998 at the height of the 1997-1998 Asian Financial Crisis. Mr Bery seized upon the opportunity and took over the US$157 million AIF Telecommunication Fund that was managed by Peregrine’s infrastructure fund team. He, along with another investment director in the same team, Mr John Troy, formed Telecom Venture Group Ltd. That was 1998. Telecom Venture Group Ltd. was subsequently renamed TVG Capital Partners Ltd. (‘TVG’).

The founding partners of TVG proved their enterprising move was correct. In the following year, when they raised their maiden fund since assuming independent status, TVG Asian Communications Fund II, LP (‘TVG II’) attracted US$140 million from international institutional investors at its first closing. TVG II manifested investors’ confidence in this new team when its final closing amount towered to US$431 million. As the first fund for the independent fund management firm, TVG II was not only a statement of institutional investors’ absolute faith in the future of TVG, but had also firmly established the firm’s credentials in the Asian private equity market ....

General Section - Divestments

In the Market

A basket of private equity assets could soon be released through either trade sales or public offerings

Since the legendary listing of Myer Pty. Ltd. in Australia, which entered the 2009 Asian private equity exit record as a top performer for 2009, divestment activities in Australia have been quiet. There are stirring movements that exit activities are beginning to pick up, not only in Oz, but also in other Southeast Asia markets (fig. 17).

The Logic of an Impending Deal

According to various market reports, the Hong Kong-based Affinity Equity Partners (‘Affinity’) could soon conclude its partnership with Loscam Ltd. (‘Loscam’). Both CHAMP Private Equity (‘CHAMP’) and Pacific Equity Partners (‘PEP’) are reportedly serious bidders for this logistics company, although The Carlyle Group was known to have earlier expressed its interest but had decided to withdraw. Should CHAMP and/or PEP succeed in acquiring Loscam, the transaction will not only add another buyout exit to the 2010 divestment record, but it will also see Loscam come under the control of a new group of Australia-based private equity investors. For Loscam, it shall be the third round of partnership with private equity investors that began more than eight years ago.

The Australia-based Loscam is a countrywide logistics company which provides returnable packaging solutions and equipment used to store and move products through supply chains. Its fate has been closely intertwined with private equity. In August 2003, it raised A$45 million (US$41.5 million) from DB Capital Partners, Deutsche Bank’s private equity investment arm in Australia. After an investment holding period of just over two years, DB Capital Partners decided to dispose of Loscam to Affinity. It was among one of the very first buyout secondary transactions between a local and foreign private equity firm.

Since coming under the control of Affinity, Loscam’s operational network has been expanded to other Asian countries, especially in Southeast Asia. In 2006, Loscam strengthened its presence in this economic region when it acquired the Thai-based Dynamic Equipment Pool Ltd.

It has been more than five years since Affinity assumed full control of Loscam and the private equity firm is ready to release its holdings.

For both CHAMP and PEP, Loscam represents an enticing proposition as it provides more than just a country-focused business platform. With both private equity firms seeking isolated investment opportunities outside of their home domains, Loscam appears to be a prized asset that warrants the attention of these two leading domestic private equity firms in Australia.

While the sale of Loscam shall be an exit for Affinity, the acquisition of Loscam by either CHAMP or PEP shall be the third time that Loscam comes under the control of private equity investors, suggesting quality buyout assets are scarce. When DB Capital Partners sold its interest in Loscam to Affinity, the selling party was known to have recorded a return multiple of more than four. With ready capital for deployment, a new group of investors that see further value in Loscam is a catalyst for an active secondary market.

Exits – by Design & By Choice

In Malaysia, following CVC Capital Partners’ recent sale of a controlling interest in GS Paper & Packaging Group that is known to have reaped rewarding returns, more exit records are expected to take place in the coming weeks.

Primus Pacific Partners (‘Primus’) could soon conclude its two-year long investment in Malaysia’s EON Capital Bhd. (‘EON’), although not by choice, but by development of events. Despite an earlier failed attempt, Hong Leong Bank Bhd. (‘Hong Leong’) is renewing its offer to acquire EON. Listed on Bursa Malaysia, EON provides consumer, business banking and finance services in Malaysia. In early April, it received Hong Leong’s second acquisition attempt.

Hong Leong first made public its courtship of EON in December 2009 which followed with an official offer in January this year. In this first acquisition offer, Hong Leong was willing to pay 7.10 ringgits (US$2.23) per share, representing a 7.9% premium to EON’s trading price on 17th December, the day before the courtship was announced. After having been rejected by the board of EON, Hong Leong returned and sweetened its offer price to 7.30 ringgits per share, a 2.8% increase to Hong Leong’s previous offer. If successful, it shall represent a transaction sum of 5.1 billion ringgits.

But Primus has been reluctant to dispose of its holdings. In 2008, when the Hong Kong-based investment firm invested in EON, it paid a hefty premium. The 9.55 ringgits committed for each of EON’s shares represented a 48% premium. Based on the latest offer price by Hong Leong, Primus would have to sell its stake without making any gain.

Primus is known for its expertise in seeking investment opportunities among financial institutions. But since taking a stake in EON, the latter’s share price has been on the decline. Its operating income for the year ended December 2009 stood at 597 million ringgits, a 19.8% decline from the amount recorded for the corresponding period in 2007 (fig. 19).

Malaysia is witnessing active exit activities. The Singapore-based Crescent Point Group could soon be releasing a portion of its holdings in Masterskill Education Group Bhd. (‘Masterskill’), a nursing college that owns five campuses with 17,000 students. The private equity firm first invested in Masterskill in 2007 and committed US$20 million. Masterskill is planning to raise as much as 800 million ringgits through an initial public offering. It shall be one of Malaysia’s largest public offerings in recent times.

Comments

The impending exits in Australia point to the enduring allure of private equity assets with a new momentum building up in the Southeast Asian market.