MSPE Asia secures its largest ever Asia deal

The captive private equity unit has committed $300 million for a minority stake in Tianhe. According to AVCJ Research, MSPE Asia has never even crossed the $200 million threshold before. This in part a function of larger funds: The Tianhe deal came out of MSPE Asia's $1.48 billion third fund, raised in 2007, which is nearly three times the size of its predecessor.

"MSPE Asia brings deep experience adding value to companies in China, coupled with industrials expertise and global resources, and we look forward to working together to expand our global market reach and increase cooperation with overseas partners," Xuan Wei, CEO of Tianhe.

As part of the deal, Homer Sun, MSPE Asia's chief investment officer, joins the Tianhe board.

A person familiar with the transaction tells AVCJ that the partnership is the result of a strong relationship at management level that goes back several years. "Over the last two decades, Tianhe has invested in developing differentiated specialty chemicals expertise that has enabled it to become a dominant player in China," the source says. "It is now well placed to consolidate its position domestically and expand overseas."

Tianhe has two business lines: lubricant oils additives (LOA), used in motor oil, where it is by far the largest domestic player, and specialty fluorochemicals (SFC), used in waterproofing and solvents, where it is emerging as a significant operator worldwide.

Berkshire Hathaway-owned Lubrizol is the LOA leader globally, followed by Infineum, Afton Chemical and Chevron Onrite. However, 60% of China's needs are met by domestic sources. In the SFC space, known for its high technical barriers to entry, Tianhe hopes to make up ground on DuPont, Daikin, Asahi Glass and Clariant, which account for 80% of the world market.

Tianhe's success largely hinges on the introduction of global best practices and in this respect the MSPE Asia role is likely to be broadly comparable to that played in other China industrial sector investments.

After participating in a $51 million round of funding for Shanshui Cement in 2004, the PE unit assisted the company in an M&A roll-up worth $600 million, increasing capacity by 75%. MSPE Asia put in more capital in 2007 ahead of Shanshui's $234 million IPO. Another good example of operational involvement came with polyester filament producer Tongkun Group. MSPE Asia invested $30 million in 2010 and facilitated vertical integration that allowed the company to stabilize supply of a key raw material. Tongkun listed in Shanghai last year.

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• Topics
• Expansion
• Greater China
• Industrials
• Morgan Stanley Private Equity Asia
• Growth capital
• Outbound investment
• China