Dance till the music stops?

Temasek Holdings’ long-expected investment in GMR Energy has now gone ahead at $354 million, and has been promptly succeeded by Infratil and the NZ Superannuation Fund’s $490 million joint acquisition of the downstream assets of New Zealand Shell. Meanwhile, CVC Asia Pacific appears to be past some regulatory hurdles in its ground-breaking $773 million Matahari Indonesian retail deal, with
shareholder approval secured, and US tech private equity leader Silver Lake has made its first China deal – albeit a c.$40 million minority transaction with NASDAQ-listed Spreadtrum Communications.
On the exit side, investment bankers across the region are reporting quite a number of mandates as private equity firms take assets to market, through trade sales or IPO. Developing situations in Australia and Singapore hint that many investments of the 2005-07 vintage, and some from even earlier, could be on their way to the exits soon. Some logistics investments for the former, and precision engineering assets in the case of the latter, are a few of the portfolio companies very likely to trade in the near future, sources suggest. Others hint that secondary buyouts, hitherto far less frequent in Asia Pacific than Europe, may soon become more prevalent.
However, despite the evident confidence in Asia Pacific boardrooms and private equity offices alike, there are some causes for concern that could slow the momentum. For one thing, many private equity firms and their advisors appear to be contemplating a listing for assets because the public markets, some feel, have already outrun themselves, or at least are not likely to deliver much more value in months ahead. Furthermore, the acquisitive optimism among Asia Pacific corporates could be shaken by a strong enough macro shock: Greece has already been instanced as one potential shock to the system.
More likely, though, is a less rosy 2011 already predicted by some economists, as the region’s governments fail to rein in their stimulus packages quickly enough, leading to higher interest rates and the workout of economic overheating. Overshadowing this scenario in particular is the PRC real estate bubble already mentioned in this issue, as China’s stimulus leaks through into asset – and especially property – price inflation.
Structurally, too, the drawn-out situation of Transurban Group in Australia indicates that certainty of execution is not guaranteed in the region any more than previously, no matter how favorable the outlook. And private equity firms themselves have some less positive reasons for their current push to exit. Sources suggest that LPs are now pushing for firms to show actual returns on their portfolios by exiting, not simply quoting valuations.
Whatever this says about the state of GP/LP relations, it does put pressure on some firms to exit now, even where assets may have some more upside left.
So a case to invest, or exit, while the music is still playing? GPs might be wise to do either while they can.

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• Topics
• Investments
• Performance
• Exits
• Temasek Holdings