Private Equities

[winston]

UPDATE 1-Capital Today to raise $600 mln for new China fund
Thu Jul 10, 2008 8:41am BST
By George Chen and Helen Ding

HANGZHOU, China, July 10 (Reuters) - Capital Today, a China-focused private equity fund, said on Thursday it will soon finish raising nearly $600 million for a new fund targeting retail, consumer and Internet-related investments in the world's fastest growing major economy.

Capital Today, whose major investors include the British government and the World Bank, currently manages a $280 million fund, of which $180 million has been spent on 12 projects, Kathy Xu, its managing partner, told Reuters on the sidelines of an industry forum.

The planned $600 million fund, whose limited partners are mostly major overseas institutions, will be the firm's second private equity fund, Xu said.

"The interest of our overseas limited partners in investing in China is not fading but continues to grow, so we haven't had any difficulties raising capital abroad," said Xu.

Its portfolio includes video-sharing site Tudou.com, which is trying to copy the success of Google's (GOOG.O: Quote, Profile, Research) Youtube.com in China, and Kungfu Catering, a domestic fast food chain operator that competites in China with foreign restaurants such as McDonald's Corp (MCD.N: Quote, Profile, Research) and Yum Brands Inc (YUM.N: Quote, Profile, Research) KFC, Xu said.

Global private equity firms such as Carlyle Group [CYL.UL] and Warburg Pincus LLC [WP.UL] have been rapidly expanding their investments in China to take advantage of the country's double-digit rates of economic growth and to diversify their holdings as the U.S. economy reels from a credit crunch.

"Everbody is coming to China, so the competition here these days is getting more and more fierce, and this forces you to work very hard for six or even seven days a week," said Xu.

"There is too much money and few good projects," she said, adding that both investors and entrepreneurs were becoming increasingly impatient about striking deals.

On Wednesday, Legend Capital, an investment arm of China's Legend Group, said it has raised $400 million for a new private equity fund which will be invested mostly in the technology, media and telecoms sectors. (For details please click [ID:nSHA17896])

Many fund houses have complained, however, that the going is especially tough in China, where private equity-owned companies face difficulties securing government approval for a public listing on the domestic stock markets, eliminating a key avenue used in other countries to exit investments.

[millionairemind]

Reminds me of the story narrated in the book Mr. China.... where $400MM was raised by Wall Street and all gone to the dogs dealing with Chinese businessmen

[Aspellian]

Dimension Data, the London-listed, South Africa-based IT-services company, will acquire the remaining shares ( 44.9% ) in Datacraft Asia, its Singapore-listed subsidiary, for USD 276m.

Symmatrix, a privately-held Singaporean IT firm, would be open to stake sale talks with potential investors. Symmatrix has two core businesses: namely, data storage, and rugged computer systems. Each core business accounts for 50% of revenues. The company has a sales target of SGD 10m (USD 7.4m) for this financial year and of USD 10m for 2010.


Hapag-Lloyd attracted between four and eight indicative bids, according to reports. It is known that a Hamburg-based bidding consortium led by the logistics entrepreneur Klaus-Michael Kuehne is one of the bidders. The Singaporean shipper NOL is said to have bid as well. NOL, long considered the favorite to take over Hapag-Lloyd, has lowered its estimated valuation of the German company to between EUR 3bn and EUR 3.4bn. The report claimed that NOL is unlikely to end up buying Hapag-Lloyd and is merely seeking a face-saving way to drop out, something likely to be reflected in its offered price.


CapitaMall Trust (CMT), the Singapore-listed mall owner, is interested in acquisitions, reported the Business Times. The report cited Pua Sek Guan, the chief executive of CMT, who noted that the current time was good for acquisitions. CMT has a USD 3.7bn market cap.


China Yuchai, the Singapore-based maker of diesel engines, has indicated it could be interested in acquisitions. The company said in a 20F filing with the US Securities and Exchange Commission on 18 July 2008: "we have acquired in the past, and may acquire in the future, equity interests in engine parts suppliers and logistics and marketing companies." China Yuchai has a USD 351m market cap.


KLW Holdings, the Singapore-listed timber flooring and cabinet manufacturer, will use funds for acquisitions, noted a stock exchange announcement. The announcement noted that the company is planning to issue 129.7m warrants, which if exercised, will raise SGD 12.9m (USD 9.5m). The announcement noted that the company will utilize the proceeds for acquisitions, bank borrowings, working capital, investments and expansion. The information was sourced from the Singapore Business Times.

Petrovietnam, is planning a Singapore initial public offering (IPO), for PVFC, its financial arm, reported the Business Times. The brief report cited a statement from the company which noted that the listing would occur later this year. Morgan Stanley acquired a 10% stake in PVFC for USD 215m last year. Petrovietnam is a Vietnam-based state-owned gas and oil group.

[winston]

China-focused private equity funds raise $12 bln in Q2
Thu Jul 24, 2008 3:46am EDT

By George Chen

SHANGHAI, July 24 (Reuters) - Ten new China-focused private equity funds raised $12 billion in the second quarter, but poor market conditions have forced foreign funds to delay exits of their investments through IPOs and secondary offerings, consultant firm Zero2IPO said on Thursday.

The second-quarter figure is up 107.6 percent from the same period of 2007 but down nearly 40 percent from the first quarter of this year, according to the firm's quarterly report.

Some 8.1 percent of capital raised by the 10 funds in the second quarter, or $972 million, target investments in Chinese property markets despite China's tight monetary policy, which may hurt its real estate industry.

Meanwhile, private equity firms invested $2.56 billion in 37 Chinese enterprises, with 63.3 percent of the private equity firms' total quarterly investments in traditional industries, according to Zero2IPO.

In the second quarter, exits of investments led by private equity firms remained stagnant, decreasing 37.5 percent from the first quarter due mainly to the worsening of both global and domestic capitals markets and strict approvals for domestic IPOs, it said.

"We estimate when the stock market begins to see signs of a rebound, there will be more exits especially in the forms of IPO and secondary offers," Zero2IPO analysts said in the report.

The benchmark Shanghai stock index .SSEC has lost more than 50 percent so far from its peak last October, forcing the government to delay the launch of China's Nasdaq-style market for small- and medium-sized enterprises.

Global private equity firms such as Carlyle Group [CYL.UL] and Warburg Pincus LLC [WP.UL] have been rapidly expanding their investments in China to take advantage of the country's double-digit rates of economic growth and to diversify their holdings as the U.S. economy reels from a credit crunch.

Many fund houses have complained, however, that it is expecially tough to make investments in China, where private equity-owned companies face difficulties securing government approval for a public listing on the domestic stock markets. That has at least temporarily eliminated a key avenue used in other countries to exit investments.

Even so, global venture capital firms' fund-raising and investment activities remained strong in China, since Beijing has also encouraged local city governments to team up with foreign capitalists to develop yuan-denominated investment funds, mostly targetting high-tech or innovative new businesses.

In the second quarter, a total of 40 venture capital funds collectively raised about $3 billion, marking a record for a single quarter, Zero2IPO said.

Among the 40 funds, seven were launched by foreign venture capital firms, which raised a total of $1.7 billion. These new funds included IDGVC, Qiming Venture Partners and Intel Capital, an investment arm of top chip maker Intel Corp (INTC.O: Quote, Profile, Research, Stock Buzz).

[LenaHuat]

A Taiwanese bank is pumping money into Blackstone - means demand for USD.
From the Biz Times newsflash 2day :

TAIPEI - Cathay Financial Holding, Taiwan's No 2 financial holding firm, said it has invested US$100 million in a private equity fund of the Blackstone Group LP.

The investment represented 0.5 per cent of the Blackstone Capital Partners VI, a recently launched private equity fund by the US-based buyout firm, Cathay said in a statement late on Friday. No other details were given.

[winston]

I think Cathay Financial Holding is the holding company of Cathay Life, the largest life insurance company in Taiwan.

US$100m is actually chicken feed to them so there could be more of such deals in the future.

[LenaHuat]

Hi Winston
Thanks for the correction. It's the timing........like what they say

[winston]

Is private equity for you?
Ian Jackson

Don't we all love something sexy and exciting? The traditional asset classes become a bit of a bore after you've been reading about them and, most probably, investing in them for quite some time. Enter that handsome newcomer, private equity.

While private equity investing has been around for a couple of decades, only in recent years has it become increasingly accessible to mum and dad (retail) investors.

Private equity is an investment strategy that usually involves the purchase of a controlling share in a private company. The strategies used by private equity managers can vary widely, but they often focus on a certain stage of a company's maturity.

The general three categories are:

(A) Venture capital: An investment to create a new company, or expand a smaller company that has undeveloped or developing revenues.

(B) Buy-out: Acquisition of a significant portion or a majority control in a more mature company. This normally entails a change of ownership.

(C) Special situation: Investment in a distressed company, or a company where value can be unlocked as a result of a one-time opportunity (changing industry trends, government regulations, etc).

Personal investors usually invest in private equity either through a private equity fund, where a fund manager creates a fund that invests directly into private equity opportunities, or through a fund of funds, where a fund manager creates a fund that itself invests in a variety of private equity funds.

According to a Credit Suisse Asset Management report, private equity has historically outperformed other asset classes, including the public markets. Over the 10 year period ended 30 June 2006, the annual return from an investment in a top-quartile US private equity fund tripled historically that of the Standard & Poor's 500 Index.

Over the last 20 years, top-quartile private equity returns almost doubled the index on an annual average basis.

The key factors that drive returns include a broadening of the available industries and geographic regions, favorable economic conditions, improved acquisition finance and an evolving approach to investment management by the leading private equity firms.

With a low correlation to traditional asset classes, private equity investing is an ideal way to add diversity across geographies and multiple industries, and gain access to some of the world's most highly motivated and growth companies.

When aiming for absolute high returns there are obviously many pitfalls.

Most private equity funds are offered only to institutional investors and individuals of substantial net worth.

This is often required by the law as well, since private equity funds are generally less regulated than ordinary mutual funds.

Private equity investments tend to have high minimum initial investment levels with some requiring further investment for the first few years of the fund.

It is also highly illiquid with no right to demand that sales be made. Distributions are made only as investments are converted to cash. It also has a long-term investment horizon (say, 10 years or more), can be complex, with scarce financial data available, and involve paying both management fees and a fee for performance.

Therefore, private equity fund investment is for those who can afford to have their capital locked in for long periods of time and who are able to risk losing significant amounts of money.

This is balanced by the potential benefits of annual returns, which range up to 30 percent for successful funds.

With a core and satellite approach to investing, private equity investing would definitely be considered a satellite.

Therefore, it may be prudent to have no more than 5 percent of your overall wealth go into a single private equity investment whilst holding no more than 20 percent of your overall investments in satellite holdings.

[financecaptain]

Nothing mysterious about private equity ("PE").

In essence, PE explores and benefits from the liquidity discounts between the listed and private markets. In the good old days when the PE funds are few in between, the difference in valuation between the private market and listed markets are large. Hence, attractive returns.

Now, very difficult as they are so many of such PE funds. Hence, in the last few years US PE prospered by taking advantage of cheap and easily available debt funding to enhence returns or risk arbitrage. Very easy, like how you can use margins to buy listed shares using up to 3-4X leverage. They call it LBO or leveraged buy out. The difference is the debt is paid down by operating cash of acquired companys instead of dividends. But since the credit market has now closed, this strategy cannot be used any more. Some of these U.S. houses actually tried to pull the same stunts on some of the SGX listcos last year. However, since the credit market has closed, you would not likely see them again at least in the next few years.

In Asia in the last few years, the PEs have benefited from the bull equity markets, essentially also exploring the liquidity discounts between the listed and private markets. But due to keen competitions, pre-IPO discounts are not large but the bull markets help to generate significant additional returns. Especially in China plays, where in additional to liquidity discounts there are what I called "corporate governance risk premiums". Hence, pre-IPO discounts for China plays are usually much higher than other companies.

Then, there is what I called the venture capitalists ("VC") that in addition to taking liquidity risks of private companies, they also take venture risks (whether the companies' business will be viable over time as they are not proven at the point of investment). VC business is essentially a number game. Usually 8 out of 10 companies will fail and the other remaining 2 companies need to generate at least 5-10X monies to yield a decent returns for the total portfolio risks. However to be fair (it is not just a pure number game), successful VCs usually have strong industry domains and the fund managers are usally ex-industrialists rather than ex-commercial or investment bankers. You will find ex-commercial and investment bankers mostly in late stage PEs than VCs.

Given current poor market situation when listco valuations are low, there is really not much liquidity discounts between listed and private markets. Why ? If you are a well-run private companies, why would you subject your self to be valued at 2-3X PE given that your listed peers are listed at 5-6X ? Better to wait for market to recover unless you are in financial crisis to raise capital. For the PE, why would I want to acquire a private firm at 5-6X PE when a listed peer is also trading at about the same PE ? Hence, if there is no buyer or seller hitting at an agreed price, there is no deal.

So what are best moves by PE now given the weak capital market enviroment ? They are probably now doing more PIPES ("private investments in public enterprises") and privatisation. The former is as good as taking position in a undervalued stock but holding a more significant stake like more than 5%. You can always do that as an individual investor but not necessary a sigificant stake. However, PE has another advantage in PIPE in that they can always approach the undervalued listco to issue convertible bond ("CB"). THe latter provides capital downside protection if stock price does not improve and yet capital upside when market recovers.

On privatisation you are seeing a lot of it happening as these listcos are not fully realising their values as listcos; There is no liquiduity premium. Usually company owners will partner with PE to privatise their listcos and relist them when marke recovers; usually with a bit of M&A later on to add value to the relisting.

So, there is no mystery of PE. Give current weak market condition, there is great opportunity to buy under valued stocks. You just need to have the patience to hold. You do not need to be a PE to do that.

[winston]

BUSINESS TIMES - Southeast Asia is emerging an attractive investment destinations for private equity and Singapore offers numerous opportunities in the high-tech manufacturing, oil engineering, healthcare and digital media industries, according to a Deloitte Consulting study.