Japan private equity firm Ant Capital, a Tokyo-based buyout firm previously owned by Citigroup Inc, suggests it pays to think small. “We are very busy now despite this (market) situation,” said Kazunori Ozaki, chief executive officer at Ant Capital. Ant Capital, which manages $1.3 billion, targets companies with less than $200 million in enterprise value. It has sold five of its portfolio companies since last year, including Aunt Stella Inc, which runs a cookie store chain, Japanese confectionery maker Morinaga & Co, and BBMF KK, the operator of a mobile phone comic book Website, and major Japanese publisher Shogakukan. Ant Capital recently purchased a nearly 100 percent stake in VarioSecure Networks, a provider of computer security, for $5.7 million. “Basically small cap is undervalued because of its non-profile. To be small caps means they are discounted already,” said Ozaki.
The Hong Kong-based Center for Asia Private Equity Research Ltd says smaller deals have generated higher returns for private equity firms in Japan.
Hedge fund Avenue Capital is in the final stages of talks to buy a Chinese medical equipment company backed by a unit of Citigroup Inc in a deal worth over $100 million, sources said as reported by Reuters.
Citi Venture Capital International (CVCI), an investment arm of Citigroup, bought an about 70 percent stake in Landwind, a diagnostic imaging equipment distributor and manufacturer, for over $80 million in 2007, when the Chinese company decided to delist from the Singapore market.
Landwind has a nationwide network in China of more than 20 sales offices with a focus on medical diagnostic imaging devices, supported by more than 50 distributors and 200 resellers.
Global private equity firm The Carlyle Group closed its fourth Asian growth capital fund, Carlyle Asia Growth Partners IV (CAGP IV), a sector-agnostic growth capital fund which invests in high growth private companies with strong local management and leading market position in China, India, Korea and other key Asian markets. Despite a difficult fund-raising environment, the fund raised $1.04 billion in only 14 months from a broad geographical range of investors.
The closing of CAGP IV reflects improving investor sentiment towards China and India as the two major economies begin to stabilize and show signs of emerging from the downturn. Nearly 40% of CAGP IV’s limited partners are new investors, demonstrating growing demand for exposure to China and India.
“We are delighted with the support we have received from our investors, especially given challenging industry-wide fundraising trends. This is an excellent time for long-term investors to seek value in China and India. Our new fund offers access to high growth opportunities with no leverage, providing attractive risk-adjusted returns. Despite the economic downturn, most of our growth capital portfolio companies have achieved growth rates in the range of 20-50% over the last year,” said Wayne Tsou, Managing Director and Head of Carlyle Asia Growth Partners. Read More »
Private equity firms, including U.S. firms Blackstone and KKR, are showing greater flexibility in approaching target assets as they face more pressure to deploy their capital, says Michael Bracken, a managing director at Royal Bank of Scotland reported Reuters.
“We expect PEs may need to be flexible — both in structure and sector. There is more willingness to look at investment opportunities beyond the traditional sectors and structures,” he says. “What may drive their investment focus may more often be what is available.”
He sees “multiple billions of dollars” as becoming available from private equity funds for Asian deals, as fundraisings in the past few years dwarfed the “$300-500 million” raised by some big Asian funds a decade ago.
U.S. private equity giant Kohlberg Kravis Roberts & Co led an investor consortium that invested a combined $160 million into a Chinese financial leasing firm to help it expand business. The other investors in the consortium include the Government of Singapore Investment Corp (GIC), the city-state’s sovereign wealth fund, and China International Capital Corp, an investment banking joint venture one-third owned by Wall Street bank Morgan Stanley reported Reuters. After the deal, state-owned Sinochem Group will retain a controlling stake in International Far Eastern Leasing Co Ltd, based in Shanghai, China’s financial hub. A source familiar with the situation said the investor group led by KKR can own around 30 percent of Far Eastern after the firm issued new shares in a private placement and thereby expanded its capital base.
“We look forward to fully utilizing our financial services industry expertise and global network to support the company as it continues to grow and develop into a world-class financial institution,” said David Liu, head of Greater China for KKR. Liu, a Columbia University graduate, joined KKR in 2006 from Morgan Stanley where, as its co-head of Asia private equity business, he led landmark deals including buying a stake in Ping An Insurance, China’s No. 2 life insurer.
Hong Kong-based private equity firm First Eastern Investment Group recently became the first international private equity firm to get the go ahead to set up a Shanghai-based subsidiary. Victor Chu, Founder & President of First Eastern Investment Group, talks to CNBC about how the business world has changed since Lehman’s collapse. The video aired on September 15, 2009 and the length is 6:02.
China Investment Corp (CIC) is investing as much overseas each month this year as it did in all of 2008, Lou Jiwei, the chairman of the $298 billion sovereign wealth fund, recently said. CIC is counting on handsome returns this year and might one day ask the government to hand it more of the country’s record hoard of foreign reserves to manage, Lou, a former vice finance minister, said.
The fund invested just $4.8 billion outside China last year as it kept its powder dry during the global financial crisis, when asset prices tumbled. It held fully 87.4 percent of its overseas investments in cash or cash equivalents. Now that markets are recovering, CIC is constructing a broad-based portfolio, Lou told reporters on the sidelines of a forum organised by the Washington-based Brookings Institution and the Chinese Economists 50 Forum, a Beijing think-tank. Read More »
UK Private equity firm CVC Capital Partners recently said it had given up a holding in Japanese restaurant chain Skylark Co, its biggest investment in the country, as the restaurant chain has posted losses for three consecutive years. CVC Capital has agreed to give its holding in Skylark to Chuo Mitsui Capital Co, a private equity fund owned by Chuo Mitsui Trust Holdings, in return for not having to pay back loans made to purchase the stake, a Tokyo-based spokesman for the buyout fund said.
CVC Capital and the private equity unit of Nomura Holdings Inc, Japan’s biggest brokerage, helped take the family-oriented restaurant operator private in 2006 through a management buyout — at the time a rarity here. CVC Capital made its investment through Asia Eateries Holdings NV (AEH), which spent 60 billion yen ($639 million) for a 35.6 percent stake while Nomura took 61.5 percent. AEH’s stake was reduced to around 20 percent after Skylark sold new shares to Nomura in December. Nomura Principal Finance, Nomura’s buyout unit, now owns 78 percent of Skylark.
Skylark’s net loss widened to 26.1 billion yen for the year ended December 2008 from 13 billion yen a year earlier. The firm operates 3,772 outlets in Japan under different brand names, according to its website.
Global buyout firms are racing to launch yuan-based funds in an effort to do deals more quickly and easily in China, where approvals for major foreign investments aren’t easy to come by reported Reuters. Anticipation of an economic recovery and an appreciating local currency are pushing Blackstone Group and its rivals to launch yuan-denominated private equity funds. U.S. private equity firms Kohlberg Kravis Roberts & Co (KKR) and the Carlyle Group are now in talks with the local government in Shanghai, China’s financial capital, for launching a fund each of not more than 5 billion yuan, sources with knowledge of the negotiations told Reuters. Their plans come after Blackstone earlier this month announced a 5 billion yuan ($732 million) fund, making it one of the first Shanghai-registered yuan private equity funds to be launched by a foreign investor. Other international firms that won recent approval to launch yuan funds this month include Prax Capital ($220 million), CLSA ($1.46 billion) and First Eastern ($878 million). Blackstone and other global private equity firms can raise yuan funds from super-rich Chinese individuals, Chinese pension funds or domestic enterprises but these funds are off limits to non-Chinese investors due to China’s strict foreign exchange controls. Read More »
Macquarie Group Ltd has formed a joint venture with China Everbright Ltd to launch two funds targeting infrastructure which aim to raise a combined $1.5 billion, joining a growing list of foreign players expanding private equity investments in China reported Reuters. The funds – one open to foreign institutional investors and the other to domestic investors – will invest mainly in toll roads, railways, airports, renewable energy and water projects in China, Hong Kong and Taiwan, the two companies said recently.
Macquarie is Australia’s biggest investment bank and manages $36 billion in infrastructure equity globally. Everbright is a unit of China’s second-biggest financial conglomerate Everbright Group. The firms have committed up to $100 million as sponsors of the two new funds, each targeting a first close in 2010.
“We are confident that Chinese infrastructure continues to offer attractive investment opportunities to both international and domestic investors and that our first mover advantage will contribute to our success,” David Russell, Macquarie’s head of private equity Asia said in a statement. “Particularly in Asia and our emerging market businesses, we are constantly reminded that key to the success of building sustainable, long-term businesses is a commitment to being local.”
“Greater China is one of the largest and most diverse markets in the world and the market continues to offer enormous and rapidly expanding infrastructure investment opportunities,” said Chen Shuang, chief executive officer of Everbright.
Private equity firm TPG has hired three banks to lead manage an IPO of Australia’s top department store Myer Group valuing Myer at about $2.1 billion reported Reuters citing sources. Macquarie Group Ltd, Goldman Sachs and Credit Suisse will lead manage the Myer IPO. About four other banks are likely to get co-joint lead manager roles, one source said.
Myer, which has 65 stores across Australia and about A$3 billion ($2.5 billion) in turnover, was bought by a consortium of TPG Capital, Blum Capital and Myer Family Company for A$1.4 billion in 2006. Myer was bought from struggling retailer Coles Group, which was later acquired by conglomerate Wesfarmers Ltd.
SOHO China has agreed to acquire a top Shanghai office building owned by the real estate investment arm of Morgan Stanley for 2.45 billion yuan ($359 million), the Chinese developer said recently as reported by Reuters. The deal marks SOHO China’s first entry into the highly competitive Shanghai property market, in which some economists have already said properties are overpriced. Previously, SOHO China focused on projects in Beijing.
The Exchange, a 52-storey office and retail complex, is also known as Dong Hai Plaza, but SOHO China will rebrand it as “The Exchange – SOHO” after the deal, according to an emailed statement from SOHO China. The Exchange – SOHO was already about 30 percent rented, with the remaining portion to be sold or leased by SOHO China in the coming months, the company said in the statement. The Exchange – SOHO is among Shanghai’s tallest skyscrapers at 217 meters, according to the statement.
“Our business model of selling commercial properties in the most dynamic city centre areas … has already earned considerable success in Beijing,” said SOHO China Chairman Pan Shiyi in the statement. “We are confident that this model can be applied to Shanghai as well,” said Pan, an influential Chinese property tycoon.
Morgan Stanley began investing in Shanghai properties in 2003 and undertook real estate projects with local partners including Shanghai Forte Land and Shanghai Dragon, an investment arm of the city government. Morgan Stanley Real Estate bought The Exchange for about 2 billion yuan in 2006.
PricewaterhouseCoopers (PwC) recently said its long-time China partner Xie Tao had resigned reported Reuters. The resignation of Xie, based in Beijing for PwC as its corporate finance leader for the China market, was a surprise to many dealmakers in China as he has handled more than 100 mergers and acquisitions over the past decade there. Xie focused on acquisition support, system review and implementation, tax planning and negotiation, project facilitation and the financial review of deal targets for both global and domestic clients, according to PwC’s China Website. A government official-turned chartered accountant, Xie was one of the most senior PwC partners in China, and he often worked closely with the firm’s major private equity clients in China to help them negotiate and implement transactions.
Brokerage firm CLSA will form an asset management joint-venture with Chinese state-owned investment firm Shanghai Guosheng Group Co to launch a yuan-denominated investment fund aiming to raise 10 billion yuan ($1.46 billion) reported Reuters. The equally owned, Shanghai-based venture, Guosheng CLSA (Shanghai) Industrial Investment Management Co Ltd, will target investments in the environment- and consumer-related, renewable energy and heavy machinery sectors.
China Investment Corp (CIC), China’s $200 billion sovereign wealth fund, is set to invest up to $2 billion in U.S. mortgages as it eyes a property market recovery, sources said as reported by Reuters. China Investment Corp (CIC) plans to invest soon in U.S. taxpayer subsidised investment funds of toxic mortgage-backed securities, which it sees as a safer bet than buying into the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF). Under the Public-Private Investment Plan (PPIP) launched earlier this year, the U.S. government plans to seed a number of public-private investment funds that would combine taxpayer money with private capital to buy as much as $40 billion in toxic securities from banks. Compared with TALF, the new and smaller PPIP program focuses on safer toxic securities, which must have so-called “Triple-A” ratings by at least two agencies, and are debts guaranteed by the U.S. Federal Deposit Insurance Corporation (FDIC), sources explained.
“Some might think $2 billion for a $200 billion sovereign fund is not big money, but it can be regarded as an innovative and positive option for Chinese investment.”
CIC is in talks with nine designated PPIP managers, which include Alliance Bernstein LP, with sub-advisers Greenfield Partners LLC and Rialto Capital Management LLC; Angelo Gordon and Co LP, with GE Capital Real Estate; BlackRock Inc; Invesco Ltd; Marathon Asset Management LP; Oaktree Capital Management LP; RLJ Western Asset Management LP; Trust Company of the West; and Wellington Management Co LLP, said the sources.
CIC is expected to decide this month which of the nine designated PPIP managers it will mandate for its investments in financial products such as mortgage-backed securities (MBS) under the PPIP scheme, said the sources.
First Eastern Investment Group, a Hong Kong-based private equity firm, aims to raise 6 billion yuan ($878 million) for yuan-denominated funds over the next 12 months to expand its investments in China. First Eastern also said in a statement it was the first international private equity firm to set up a Shanghai-based subsidiary.
Shanghai competes with other Chinese cities including Tianjin and Beijing in attracting foreign private equity investment as it seeks to foster corporate governance and steps up efforts to become an international financial hub by 2020.
“Capital supply from U.S. dollar investors is shrinking, while in China, there has been increasing demand for managers of yuan funds due to ample liquidity,” said Alex Wang, Shanghai-based partner at U.S. law firm Paul, Hastings, Janofsky & Walker LLP. “Local incorporation can help foreign firms bypass many regulatory hurdles when exiting from their private equity investments, and fully benefit from China’s booming stock market.”
China in June lifted a nine-month ban on initial public offerings and will this year launch a Nasdaq-style second board, expanding exit channels for private equity and venture capital investors in a stock market that has jumped more than 60 percent this year.
“Through our local expertise and our expanding global network, I am confident we can add substantial value to aspiring Chinese companies both in China and on international markets,” First Eastern Chairman Victor Chu, an influential businessman in Hong Kong, said in the statement. First Eastern, founded by Chu two decades ago, invested in more than 100 projects in China covering infrastructure projects, light industries, real estate development and financial services.
Private equity firm Actis recently said it has hired Jiansheng Wang from rival Cerberus Capital Management as a partner based in its Beijing office. Wang, previously managing director of Cerberus’ China operations, will help Actis, which is best known for its deals in Africa and India, source for investments in China as well as work with the firm’s financial services team. “Jiansheng will deepen our understanding of the financial services sector in China domestically and regionally,” Actis senior partner Paul Fletcher said in a statement. Actis, which has $4.8 billion in funds under management, will benefit from Wang’s network of relationships in the Chinese government forged during his time with the World Bank’s International Finance Corp and Cerberus, the firm added.
Private equity firm Blackstone Group LP plans to launch a 5-billion-yuan ($732 million) fund that will primarily invest in the city of Shanghai, the city said in a statement recently reported Reuters. The fund is the first local currency yuan fund to be launched by Blackstone and will mean the establishment of a wholly-owned China subsidiary for the giant private equity company. Besides Blackstone, foreign early birds for such a move have included U.S. venture capital firm Sequoia Capital, which last year raised about 1 billion yuan for its first yuan-denominated venture capital fund to focus on small China deals.
Blackstone recently signed a memorandum of understanding with the Shanghai local government on the fund’s creation during a signing ceremony. The fund will give priority to investments in Shanghai and neighboring areas, according to the statement.
Blackstone’s Greater China Chairman Anthony Leung, a former Hong Kong financial secretary, said in November the group would not slow its investments in China despite the global financial crisis, as high economic growth and low valuations promised good returns.
Blackstone also has ties to China through the sovereign wealth fund China Investment Corp (CIC). CIC, created to manage part of China’s foreign exchange reserves for higher returns, in July completed an investment of about $500 million into a Blackstone hedge fund unit, a source familiar with the matter said at the time. CIC is also an investor in Blackstone itself. It bought its original 9.9 percent stake in Blackstone just before the company’s $31-a-share initial public offering in June 2007, and in October struck a deal allowing it to increase its ownership to up to 12.5 percent.
Fortescue Metals Group Ltd and China Investment Corp (CIC), China’s $200 billion sovereign wealth fund, are in advanced talks on a $1 billion-plus convertible bond investment to help the Australian iron ore miner fund its expansion, sources said as reported by Reuters. In recent months, China’s sovereign wealth fund has shifted its strategy toward investments in natural resources. Last month, CIC bought a 17.2 percent equity stake in Canada’s Teck Resources.
Earlier this year, China’s Valin Iron & Steel Co was cleared by foreign investment regulators in Australia to take up a 17.55 percent direct interest in Fortescue for around $770 million.
Private equity firm Blackstone Group is selling $600 million in its first corporate bond offering, a market source recently said reported Reuters. The 10-year notes are expected to yield 312.5 basis points over comparable U.S. Treasuries, according to the market source. Citigroup and Morgan Stanley are the joint lead managers on the sale.
Blackstone, which bought hedge fund business GSO Capital in 2008, has said in the past it sees longer-term opportunities to make acquisitions and sees consolidation in the alternative asset management industry.
Standard & Poor’s Ratings Services earlier this year assigned an A long-term counterparty credit rating to Blackstone, and Fitch Ratings this week assigned it an A-plus long-term issuer default rating. An A rating is the sixth-highest investment grade, while A-plus is the fifth-highest.
