Asia’s Private Equity Hub? Hong Kong & Singapore in hot race & Thailand off the beaten track!


As Singapore and Hong Kong compete to be the Asia’s private equity hub, Thailand has taken an off beat track, and set up a “Seed Money” fund, to develop 1,000s of entrepreneurs.

Thailand’s prime minister, Yingluck, launched the “Seed Money Fund” at Uttaradit Rajabhat University, following the project’s official unveiling on December 12. This aims to support 5,000 qualified applicants to set up new businesses, at least 10 per cent of which could operate well in the Asean market. Currently, there are 56 “incubation centres” at universities under the project; nine in the North, such as Chiang Mai University, Mae Fah Luang University, Chiang Rai Rajabhat University, and Naresuan University in Phitsanulok.

A competitive issue involving Hong Kong and Singapore has been brewing for a while. Post-crisis, Singapore started upgrading its regulatory regime to make it more friendly to fund managers. More specifically, it became easier for fund managers to have a “substantive presence” in the island nation, a key legal definition that must be met to reduce taxes. This week Singapore signed a double tax agreement with Guernsey, sending the message that more such agreements with other domiciles could come to its tax-friendly home. 

Hong Kong’s regulatory regime hasn’t kept pace. The government traditionally hasn’t provided preferential tax treatment to any industry, including fund managers. Meanwhile, China fund managers worry that they soon may be taxed on the mainland and the idea of setting up an office in Singapore is becoming more appealing each year.

In Hong Kong, the obvious concern is the SAR – currently the ‘capital’ of Asian private equity – will lose fund managers. The Hong Kong Venture Capital and Private Equity Association (HKVCA) has been lobbying local officials to update the regulatory regime to make it more competitive and reduce the chances of an exodus.

It stands to reason an association would get involved with such issues on behalf of their members; indeed many Western private equity associations routinely blast out policy positions and lobby regulators and politicians. But for the HKVCA it marks one of its first such efforts – and as one insider noted, it’s a “bit of a stretch” to call what they’re doing lobbying. “It’s really reacting – and giving answers to – the government,” said the Hong Kong-based LP.

But it’s exactly the sort of thing they ought to be formalising and doing more of. And hopefully marks a turning point in the maturation of Asian private equity: the development of its private equity associations.

The competition between Hong Kong and Singapore, is coming off a time of weak private equity in Asia Pacific. 

Private Equity interest in Asia has dropped slightly year-on-year, particularly in previously popular countries like China and India, according to a recent Probitas survey. Investor sentiment in Asia’s two largest markets was down significantly in 2012, reflected in the steep drop in fundraising. However, KKR managed to raise the region’s largest fund ever. The amount private equity firms invested in India during 2012 dropped 15% year-on-year, with Q4 figures especially low, according to Venture Intelligence data.

But while being hit with a drop, the private-equity business remains in the doldrums in much of the world, the Asia–Pacific region stands out as an exception. A recent McKinsey report, Private equity Asia–Pacific: Is the boom back?, shows that in 2011, Asia was the world’s only major region where these firms’ total investment values returned to 2006 levels—a total of some $65 billion. At 21 percent of global deal values, Asia’s share of the private-equity business is now close to matching Asia’s share of global GDP: 28 percent. Yet the gap between the two figures leaves substantial room for growth: on average, the ratio of private-equity investment to GDP among Asian countries is less than half that of the United States or the United Kingdom.

  • Global Player in Private Equity Comes to ASEAN:

WSJ says some of the world’s biggest private-equity firms have stepped up their presence in Southeast Asia this year, eager to benefit from the region’s growth. The following is from the Wall Street Journal:

But even as the value of transactions surges, the region remains a tough place to make a deal, says WSJ. One key reason: Valuations are rising quickly as competition heats up for assets. Companies, particularly those in Japan and Korea, are looking there for growth, more so as growth stalls in India and China, say bankers and deal makers. These buyers are often happy to pay more than private-equity investors.

“Our competition is very rarely private equity. Our real competition is strategic buyers,” as firms in similar industries are called, said Rodney Muse, managing partner of Kuala Lumpur-based Navis Capital.

WAJ says private-equity transactions in Southeast Asia have totaled $3.6 billion so far this year, up from $1.3 billion last year, according to data from the Centre for Asia Private Equity. This year’s figure includes a $1.7 billion buyout of snack-food franchises KFC Holdings (Malaysia) Bhd . and QSR Brands Bhd . by European private-equity firm CVC Capital Partners, which hasn’t yet closed.

Last month, U.S. private-equity firm Kohlberg Kravis Roberts & Co. opened its Singapore office in a ceremony attended by co-founder Henry Kravis. KKR’s Southeast Asia regional leader Ming Lu said he “would imagine” that in the next five years the firm would invest more than $1 billion in the region, after investing more than $1 billion there since 2005.

Blackstone Group also opened a Singapore office earlier this year, while Carlyle Group recently closed its first Southeast Asia deal, an investment in Indonesian telecom towers operator PT Solusi Tunas Pratama  for between $100 million to $150 million, according to people with knowledge of the deal.

“Strategic buyers can sometimes afford a little bit more given the synergies they expect to achieve. That has led to some aggressive bidding for assets,” said Sebastien Lamy, a partner at consulting firm Bain & Co. in Singapore.

High valuations in the stock markets could also be driving pricing expectations. Both stock markets in the Philippines and Thailand are up more than 20% year-to-date, and Indonesia is up 13%, for example. In contrast, China’s main indices are in negative territory for the year.

“Sellers’ expectations [in Southeast Asia] have become very high,” Navis Capital’s Mr. Muse said.

Some private-equity firms have benefited from the demand for Southeast Asian assets, by selling investments to strategic buyers at a hefty profit, says WSJ. Navis sold Singapore-based King’s Safetywear Ltd., a maker of protective shoes for industrial uses, late last year to U.S. conglomerate Honeywell International for $338 million. It had bought the company in 2008 for S$97.1 million ($79.2 million).

Apart from intense competition, one of the most common complaints is that it remains difficult to find deals, not least because of the dominance of large, family-owned conglomerates in Southeast Asia’s economies. The number of smaller startups are low in comparison.

“The entrepreneurial segment of the economy [in Southeast Asia] is still small,” Sigit Prasetya, managing partner for Southeast Asia at CVC, said on a panel at the Asian Venture Capital Journal conference in Hong Kong last week. He added that because these large business groups have great access to capital from banks, they are also asking what else private-equity can bring beyond just capital.

That may be starting to change, as the second generation of these families is more receptive toward the operational expertise that private-equity firms can offer, said John van Oost, managing partner of Singapore-based, Yishan Capital Partners, a real-estate investment firm that specializes in investing in Southeast Asia.

For example, Yishan recently formed a joint venture with Indonesian industrial group Rodamas Group, whose businesses range from chemicals to food, to manage and develop logistics facilities in the country.

  • WSJ says KKR’s regional leader for Southeast Asia, Ming Lu, said he imagines that the firm would invest over $1 billion in the region over the next five years. An earlier version of this article incorrectly said the comments were made by KKR co-founder Henry Kravis in Singapore, and that the firm announced plans to invest more than $1 billion in the region over the next five years.

ASEAN Private Equity Rebound:

Southeast Asia’s private-equity investments will pick up in 2013, reversing a half-decade slump as the region’s improving economic outlook attracts funds, said Sebastien Lamy, a partner at Bain & Co. Private-equity deals in the region in 2012 are expected to match 2011’s $5.3 billion or post a decline, before staging a rebound over the next two years, Lamy said, citing Bain research. The investments dropped from a peak of $12.3 billion in 2007, according to data from the corporate consulting firm.

“The overall economic outlook for Southeast Asia remains solid and we are seeing strong interest by investors,” Lamy, a partner at Bain in Singapore, said. “Deal-making in the region will pick up in 2013 or 2014.”

Navis Capital Partners Ltd., which manages $3 billion of private and public equities, also said last month that private- equity investors are set to increase bets in Southeast Asia.

“There is a question mark about prospective returns, given the slowdown in the Chinese economy,” Navis Managing Partner Nicholas Bloy said a slowdown of private-equity investments in Southeast Asia “will reverse itself very powerfully in the next two or three years.” Singapore and Malaysia were “historical sources” for deals in Southeast Asia and they “will continue to offer a significant deal flow of private-equity investors,” he said.

Funds may eventually turn to smaller markets. Silk Road Management, an investor in frontier markets, said last week it will take stakes in three Myanmar projects by year-end, the first private-equity deals in the region’s poorest nation as it emerges from five decades of isolation. “Southeast Asia is a promising region with very strong fundamentals…..People are going to have a foothold beyond 2014 in countries like Vietnam, the Philippines and Myanmar.”

  • Thailand’s Alternative Route:

Meanwhile, Thailand is pushing for public seed funding. The Seed Money Fund project offers soft loans to students or others who graduated less than five years ago, who have good business plans.

Yingluck launched the “Seed Money Fund” at Uttaradit Rajabhat University, following the project’s official unveiling on December 12. This aims to support 5,000 qualified applicants to set up new businesses, at least 10 per cent of which could operate well in the Asean market. Currently, there are 56 “incubation centres” at universities under the project; nine in the North, such as Chiang Mai University, Mae Fah Luang University, Chiang Rai Rajabhat University, and Naresuan University in Phitsanulok.

The government is now offering soft loans to students or graduates from higher-educational institutions provided they can offer a good business plan. Each applicant can seek up to Bt1 million via the Seed Money Fund project, which was officially launched by Prime Minister Yingluck Shinawatra yesterday.

“We aim to provide support and opportunities to students and young graduates who have the potential to become new-generation entrepreneurs,” Yingluck said.

The government has already approved Bt5 billion for the project, which will also get additional funding from several banks such as Krungthai, SME Bank and the Government Savings Bank.

According to Yingluck, 56 university business projects are up and running nationwide and young entrepreneur aspirants can contact them for help. Education Minister Phong-thep Thepkanjana said the project would likely start handing out loans in the first quarter of next year. Olarn Chaipravat, who chairs the Seed Money Fund’s board, said 5,000 to 10,000 loans should be approved next year. “Several business aspirants have already expressed an interest. They intend to venture into software, robot, agriculture and food industries,” he said.

Yingluck said that the Seed Money Fund project was one of her government’s key policies, and should create jobs and generate entrepreneurs.


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