NEXT GROWTH STORY: As China’s star dims, private equity investors are
eyeing the two ‘buoyant economies’
KUALA LUMPUR: PRIVATE equity
investors may find deals in Indonesia and Malaysia a more worthwhile bet when
seeking investments in Asia, amid waning economic growth in China.
Many general partners are now
turning their focus to Southeast Asian nations as the "best proxy"
for Asia's growth story, according to Brian Chia of Baker & McKenzie's
member firm Wong & Partners in Malaysia.
In comparison, China's star has
started to dim, with many economists expecting the mainland's August economic
data to show stabilisation, although at relatively low levels. The data are due
for release later this week.
The Malaysian economy, however,
has proven "buoyant" and sectors like food, consumer, education and
manufacturing are still attracting regional interest, said Chia, adding that
"investors like any industry which has a consumer angle".
In China, the consumer story has
taken a few steps back, with Morgan Stanley Asia's economists estimating that
the country's overall "disinflationary trend is still on track".
Key Malaysia-based players
include Navis Private Equity, which manages more than US$3 billion (RM9.3
billion), investing in both private and public transactions. The firm secured
capital commitments worth RM230 million for a Malaysia Growth Opportunities
Fund I last year, according to its website. Even though Navis is based in Kuala
Lumpur, it also targets other Asian countries, including Thailand and
Singapore.
The consumer sector -- including
food and beverage, supply chain and healthcare -- is also proving to be a sweet
spot for investors in Indonesia on the back of a growing middle class and
higher disposable incomes, said Jon Worsfold of Baker & McKenzie.Wong &
Leow in Singapore.
International general partners
have taken note, with Bain Capital and Blackstone last month bidding to buy a
stake in PT Lippo Karawaci's healthcare operator Siloam. That stake may total
up to 30 per cent, or even more, possibly up to 49 per cent, if bids for the
hospital unit equal the target valuation of more than US$1 billion, Dow Jones
Newswires previously reported.
"It is a decent size deal
and business, and in a sector which has a lot of potential -- the Indonesian
hospital sector needs improvement, and was liberalised in 2010 to allow foreign
investment," said Worsfold.
In the last five years,
Indonesia's private equity industry was largely dominated by local firms like
Saratoga Capital and Northstar Pacific Partners, which is a local partner of
TPG Capital and raised US$800 million last year, he said.
However, investing in Indonesian
deals is still fraught with challenges, the major one being a lack of decent
assets for buyouts or a controlling stake, according to Worsfold, noting that a
high premium is usually paid for taking a controlling stake in a portfolio
company. Other factors like tax issues, compliance and general deal
transparency are also proving hurdles, even for bigger players with more
resources.
On top of this, private equity
players in Indonesia are finding themselves squeezed out by trade buyers on the
pricing of deals, he said. "PE funds can't pay prices that Japanese trade
buyers can."
Worsfold noted Japan's Suntory
Beverage and Food Ltd's acquisition of a 51 per cent stake in Indonesian
consumer company GarudaFood, which saw Suntory compete in a "long auction
process with PE funds" but eventually outbid them.
A report issued by McKinsey &
Co. in June said 15 private equity deals were completed in Indonesia last year,
worth about US$860 million. Deals across the whole Asia-Pacific region totalled
around US$65 billion.
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