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AVCJ
  • Investments

The mill wheels churn

  • Paul Mackintosh
  • 24 March 2010
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Two big investments in one week follow two major trade sales in the previous week.

Blackstone and Capital International, as well as (apparently) Atlantis Investment and Warburg Pincus, put $600 million pre-IPO into Dili Group Holdings Co. Ltd., an operator of wholesale vegetable marts. Concurrently comes a $425 million significant minority investment into Indian power play Asian Genco by a consortium of investors led by Morgan Stanley Infrastructure Partners, including General Atlantic, Goldman Sachs, Everstone Capital, and Norwest Venture Partners. And this immediately after TPG Capital’s a $685.3 million exit from Singapore hospital operation Parkway Holdings to Indian healthcare group Fortis Healthcare, and CVC Asia Pacific’s sale of $212 million Malaysian pulp and paper investment Paperbox Holdings Ltd. to Japan’s Oji Paper.

Also, in a less-well-watched – but very rewarding – outcome in the US, Asian Genco investor GA and Oak Hill Capital Partners are selling some of their stake in Genpact, an Indian-headquartered NYSE-listed BPO leader they put some $800 million into back in 2005. The latest deal could return all shareholders at least $417 million and up to $485 million, on top of the 2007 IPO proceeds, with GA and Oak Hill left still sitting afterwards on 45.74% of the business, worth some $1.48 billion.

So post-GFC certainty seems to be returning to both investments and exits in Asia Pacific. GPs now have the kind of forward comparables they need to price realistic entry valuations, as well as the obvious comfort and certainty of open exit windows. Because the underlying drivers of current Asian strategic appetite for trade buys – large cash piles, strong debt support from relatively healthy banks, and moribund Western competitors – appear sustainable for at least the next few years. Furthermore, even in the US market, the banks are willing to back large corporates, confirmed Martin Feldstein, Professor of Economics at Harvard and member of the US President’s Economic Recovery Advisory Board. Much more so their Asian peers, less burdened by the US banks’ post-GFC issues.

Investable assets and situations in Asia may need time to work on – GPs on both the Dili and Asian Genco deals measured their preparation time in years – but they are available, and with few fundamental regulatory or other challenges in sight to upset them.

Then is everything coming up roses for private equity in Asia Pacific? Not quite. For one thing, the third leg of the triangle, fundraising, remains wobbly, as discussed last week. But also, the asset class’s ability to digest the money already raised for it, let alone allocated to it, appears challenged for the foreseeable future, despite the better times.

The just-released Bain & Co. Global Private Equity Report 2010 concluded that there was some $500 billion of buyout capital, and up to $1 trillion of total private equity capital overhang, raised during the boom years of 2005-08, and yet to be called or invested. The Abu Dhabi Investment Authority’s first Annual Review, out just before, cites a 2-8% allocation range for private equity out of its total commitments. At the top $875 billion estimate of ADIA’s total wealth, that could mean some $70 billion of private equity capital – far more than the $54.6 billion invested in all Asia Pacific deals in 2009, according to AVCJ figures. Now we have the Yale Endowment revealing a 5% increase in its allocation to the asset class, for a further $4.4 billion. Some reports suggest this may be more necessity than enthusiasm – a consequence of its upcoming commitments – but the result is still more capital capacity released into private equity.

However healthy the deal flow, however lucrative the exits, are the kind of deals we see now going to come anywhere near to recycling that kind of capital volume, extant or pending? Unlikely, no matter how fast the wheels turn.

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