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August 2010 Issue
In Brief

Fierce Bids for Two Healthcare assets underline shifting economic dynamics not only in the region, but in the globe Feature
Asian Institutions Increase PE commitments, fuelled by growth and opportunities in the region, vastly different from their Western counterparts Institutional Investors – Analysis
Political Stability and FDI are intertwined as evidenced by capital flow directed to both the Philippines and Indonesia General Section – Investments
Non-Asian VC Eyes Oz as a new land of opportunities that highlights foreign investors’ efforts to engage Australia despite its distance General Section–Investments
Buyouts Momentum in Australasia points to demand of quality assets in these two markets General Section –Divestments
FX Shores up Sanyo’s Exit Results – a factor that warrants attention as Asian currencies appreciate General Section –Divestments
Indian Funds Eye Specifics, indicating a deepening of the Indian private equity market India Corner – Funds
A Recent Buyout by Actis is an exception rather the norm India Corner – Investments
India’s Stock Exchange Vital for private equity exits India Corner – Divestments
Content

Analysis

Institutional Corner
News
Analysis
Institutional Directions Funds
Investments
Divestments

General Section
News
Investments
Divestments

India Corner
News
Funds
Investments
Divestments

Subscriber Weekly Summary
Summary
Index & Exchange Rates

The Assets

I n Asia’s fragmented economy and varied demography, there is one sector in which its assets are being courted by investors: it is healthcare. In the six months ending in June, 29 healthcare-related deals representing an aggregate deployment of US$544 million were known to have been consummated. The transaction total is a 46% increase over those recorded during the corresponding period in 2009 (fig. 1). The percentage increase enjoyed by the healthcare sector during this period is the highest for any industry and underlines the surge of interest in deploying capital to this industrial sector.

For the first time, two of Asia’s biggest healthcare operators, Singapore’s Parkway Holdings Ltd. (‘Parkway’) and Australia’s Healthscope Ltd. (‘Healthscope’), are simultaneously pursued by both limited and general partners separately. Each transaction is to command well over a billion dollars in deployment. As a testament to the intense interest to acquire quality healthcare assets, both parties of investors are prepared to pay substantial premium in order to clinch the deals. In particular, the bidding for Parkway was a showdown of financial prowess between two Asian institutions.

Doctors at the Finance Ward

Ironically, Parkway owes its growth and development not to strategic but rather to financial investors. In 1999, shortly after the 1997-1998 Asian Financial Crisis, the financially beleaguered Parkway came under the control of the Singapore-based Symphony Capital Partners (Asia) Pte. Ltd. (‘Symphony’). During Symphony’s nine-year long care of Parkway, the private equity firm performed a series of corporate surgeries. It sold Parkway’s money-losing heart clinic in London; disposed of properties to stem off financial losses. It has also successfully brought Parkway to the Indian market through a joint venture with Apollo Hospitals Enterprise Ltd. (‘Apollo’), currently among the largest healthcare services providers in India.

When Symphony decided to sell its stake in Apollo in 2005 and subsequently in Parkway in 2008, it entrusted these two parcels of healthcare assets to Khazanah Nasional Bhd. (‘Khazanah’), the Malaysian government’s investment arm that is gaining the attention of the financial investment industry as one of the most active sovereign wealth investors in Asia. Unbeknown to Symphony, it planted the seeds for the most contentious battle between two institutions in the Asian healthcare industry ....

Institutional Corner - Analysis

Institutional Directions

Institutional investors in Asia are increasing their exposure to private equity

When the Singapore sovereign wealth fund, Temasek Holdings Pvt. Ltd. (‘Temasek’) announced its plans to allocate more resources to Asia, it was a statement that represented the prevailing position taken by Asian institutional investors. The direct investment profile of these investors during the first half of the year testifies to this new trend. In the first six months, over US$8.6 billion in direct investment was known to have been committed by institutions based in the region, of which Asia-based assets accounted for 79%, substantial increases from the respective US$366.3 million and 57% recorded for the corresponding period in 2009 (figs. 10 & 11).

The Eastern Winds

Across Asia, the region’s emerging pool of institutional investors is increasingly associating itself with private equity assets. China has firmly established itself as the hub of the largest institutional community in Asia. During the first six months of the year, of the 203 allocations known to have been made to Asian private equity funds, establishments in China accounted for the lion’s share, at 66%. Although the state-owned or provincial government bodies have been the mainstay of institutional capital, private sector organisations have been taking an increasingly pronounced profile. Earlier in the year, the Shanghai-based Fosun Group (‘Fosun’) sponsored the launch of a joint venture fund with The Carlyle Group. The fund has an initial capital of Rmb682.7 million (US$100 million). In Fosun-Carlyle (Shanghai) Equity Investment Fund, Fosun, a leading privately owned conglomerate, subscribed to half of the capital.

Most recently, Shanghai Dazhong Group Capital Private Equity Investment Co., Ltd. (‘Dazhong Capital’), a subsidiary of the Shanghai-listed Shanghai DaZhong Public Utilities (Group) Co., Ltd which principally engages in gas transmission and distribution as well as transportation sector, invested around Rmb250 million in China Media Capital. The latter is China’s first media-focused private equity fund and was sponsored by CBC Capital, a fund management firm founded by Mr Edward Tian, former chief executive of China Netcom.

In addition to subscribing to the fund, Dazhong Capital also took up an equity position in China Media Capital’s management firm, China Media (Tianjin) Investment Management Co., Ltd. It has allocated Rmb11.8 million for just under a 20% stake (fig. 12).

Land of Taj

In the land where the Taj Mahal is home, private enterprises have been the force behind the growth of private equity funds. Earlier in the year, the Aditya Birla Group announced the successful first close of its maiden corporate venture fund that had garnered US$196.5 million in capital. Of this amount, India’s leading conglomerate has pledged US$100 million. Religare Enterprises Ltd., controlled by the family that owns Fortis Healthcare Ltd., recently announced its second fund that focuses on both the healthcare and education sectors in India, India Build-out Fund-II. The fund has a target size of US$200 million and Religare is believed to have pledged to commit to 5% of the fund’s final pool.

ICICI Bank, the country’s largest private bank, is also broadening its exposure to private equity. In addition to being the founding institution of ICICI Venture Funds Management, ICICI Bank recently drew up a blueprint for an infrastructure fund that has a target size of US$500 million.

Among India’s government organisations, the State Bank of India has been a pillar of support for the country’s private equity fund sources. The state-owned bank recently joined forces with the State General Reserve Fund of Oman and jointly put in US$100 million for The India Oman Joint Investment Fund. The State Bank of India harbours ambitious plans for this fund, as its final size could be increased to US$1.5 billion (fig. 13).

New Boys on the Block

Even institutions in Southeast Asia, outside of Singapore, are building up their profile in this economic region. Malaysia’s Ekuiti Nasional Bhd. (‘Ekuinas’), which was formed less than a year ago under the auspices of the government, recently announced having identified three fund management groups for its 1st Tranche Outsourcing Programme (‘1st Tranche’) under the country’s Outsourced Fund Managers initiative.

CIMB Private Equity Sdn. Bhd., KFH Asset Management Sdn. Bhd. and Navis Capital Partners are the fund management firms selected in this 1st Tranche. The three fund management firms are to manage separate pools of capital that aggregate to at least 500 million ringgit (US$156.4 million). Of this, Ekuinas is to put up to 400 million ringgit (fig. 14).

Ekuinas’ recent appointment of the three fund management firms came on the heels of a recent commitment made by Maybank Group. The largest banking institution in Malaysia has allocated up to US$50 million for the Maybank MEACP Clean Energy Master Fund that has a target size of US$250 million. This is Maybank Group’s first major and known investment in the private equity sector in recent years.

Comments

Ironically, private equity, an investment concept that originated in the West, is undergoing a period of brutal consolidation there. In the US and Europe, financial institutions are either reducing their exposure or severing their associations with private equity. Earlier in the year, Bank of America sold its US$1.9 billion portfolio of limited partnership interest in private equity funds to AXA Private Equity. Citigroup recently announced the sale of its private equity interests in a fund of funds, mezzanine fund, feeder funds and co-investment businesses (‘CPE businesses’). The sale of Citigroup’s CPE businesses commanded substantial assets, as they represented a total of US$10 billion of funds under management.

Even in Europe, financial institutions are paving exit routes for their private equity units. Earlier, HSBC Holdings plc announced management buyouts of its four global private equity units, including HSBC Private Equity (Asia) Ltd. When the process is completed, the demerged private equity units will assume new identities. Most recently, Standard Chartered Bank closed its private equity unit within its private wealth management group as part of the bank’s risk management overhaul.

In one single catastrophic financial event with unprecedented magnitude, the equation in the global institutional world has thus changed, and with this, a new order has emerged (fig. 15).