One heady week last month Blackstone, Oaktree Capital and Providence Equity Partners each announced plan to ramp up their activities in Asia.
The expansion of the private equity heavyweights in Asia comes amid a growing availability of funds for buy-outs across the region, writes Sundeep Tucker on the FT’s comment and analysis page. KKR is set to announce a $4bn Asia fund, a record for the region.
But nationalist sentiment in China and South Korea has already got in the way of some buy-outs and may limit the scope of deals. In Japan, buy-outs remain a sensitive issue best dealt with by firms with a local face.
“The whole paradigm of private equity has shifted in Asia over the past few months,” says Kathleen Ng, managing director of the Centre for Asia Private Equity Research in Hong Kong. “Until recently the industry was focused on providing growth capital or buying previously distressed assets such as Korean banks. Now, investors are focused on profitable, world-leading quality companies.”
An associated feature is a growing willingness of private equity to back MBOs. Industry veterans says it is likely that private equity will team up with Asian companies that are looking to build global scale by acquiring assets overseas – such as India’s Ranbaxy, which is considering linking up with private equity in its bid for Germany’s Merck.
But Macquarie and Texas Pacific last year bid more than $7bn for the core assets of PCCW, only for Beijing to repel their advances on nationalistic grounds. Carlyle has waited 16 months for regulatory approval of Xugong, a Chinese machinery maker. In China, opportunities are limited by the absence of the deep pool of management talent that private equity looks for. In India, buy-outs maybe held back by rules that restrict banks from lending to highly leveraged vehicles.
X.D. Yang, Carlyle Asia’s managing director and co-head of buy-outs, says private equity found fertile ground in the US because of the pressure on boards to focus on shareholder value — a dynamic that does not exist to the same extent in Asia.
But Mr Yang is optimistic that private equity will do well in its Asia forays. He says: “Valuations are rising in the region but many companies and sectors remain relatively attractive on a global basis. Comparative returns should still be higher than other regions. Asia is still in an expansion phase.”
Source : FT