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North and South

Asia's roaring economic growth is providing private equity investors with an array of growth capital opportunities, finds the Asia Private Equity Review. Although companies in China have been keenly courted by private equity investors, Southeast Asian companies are far from trailing behind.

Before the new year was ushered in, both Thailand and Singapore recorded private equity capital injections into companies. The trend further underscores a recovery of investors' confidence on the future prospects of companies in the Southeast Asian region.

China continues to command investors' attention. While the global press was trumpeting a possible US$400 million deal between The Carlyle Group ('Carlyle') and China Pacific Insurance (Group) & Co., Warburg Pincus joined two other investors in becoming a new shareholder of Harbin Pharmaceutical Group. As Carlyle's commitment in China Pacific Life remains unconfirmed, the Harbin Pharmaceutical transaction that amounted to Rmb2.03 billion (US$245 million), took the crown as the largest deal in China in 2004.

In this landmark acquisition of a state-owned enterprise's shares, Warburg Pincus teamed up with the local provincial venture capital firm, Heilongjiang Chenneng HIT High Tech Venture Capital Co. ('Heilongjiang Chenneng') as well as one of the most consummated investors in the China market, CITIC Capital Markets Holdings Ltd. ('CITIC Capital'). Warburg Pincus and CITIC Capital will each commit US$100 million in taking up a 22.5% equity stake respectively in Harbin Pharmaceutical, while Heilongjiang Chenneng will assume a 10% equity position and subscribe to the residual amount (fig.7).

Both Actis and 3i plc closed their 2004 books with respective investments in China. Actis deployed US$12 million in an US$21 million transaction in which foreign investors took up an undisclosed equity stake in YuHua TelTech Ltd., a leading mobile phone design company in China. The deal came only months after the private equity firm committed US$10 million in China Wolfberry Holdings.

Founded in 2001 by a team of experienced Chinese engineers from Silicon Valley, the Shanghai-based YuHua TelTech currently sells its phones and designs to more than 20 local mobile phone manufacturers and distributors.

3i however chose to be the sole investor in its latest US$20.5 million commitment in GST Group Limited, a company that supplies fire alarms. The transaction came on the heels of a recent US$10 million pledge to Focus Media.

But not all investors focus on China. In Singapore, Baring Private Equity Partners (Asia) ('Baring Asia') took the opportunity to increase its exposure to Norelco Centreline Holdings ('Norelco') when the founders of the company have decided to reduce their equity holdings. Listed on the Singapore Exchange Ltd., Norelco is a leading contract equipment manufacturer engaged mainly in the making of precision machine components.

Through its Baring Asia II Holdings (13) Ltd., Baring Asia has purchased more than 48 million shares at S$0.48 (US$0.29) per share, representing a S$23.09 million transaction. The acquisition price was an attractive discount of 27.3% to Norelco's closing price of S$0.66 on 3rd December, the day when the transaction took place.

The transaction came ahead of an October 2002 option agreement which will lapse by April 2005. Under the agreement, Baring Asia II Holdings (13) was granted the option to purchase additional shares from principal shareholders of Norelco, at the agreed price of S$0.55. Following Baring Asia's recent acquisition of these 48 million shares, the October 2002 option was rescinded. As part of the agreement with the principal shareholders of Norelco, Baring Asia II Holdings (13) sold four million shares to certain key management employees in Norelco at S$0.48 a piece. Upon completion of these two transactions, Baring Asia II Holdings (13) now holds over 69.6 million Norelco's shares, representing an 18% equity position. After Norelco's public debut in the first half of 2004, Baring Asia II Holdings (13) assumed a 6.2% equity position.

Thailand Equity Fund, sponsored by Lombard Investments, Inc., the country's largest fund, made further commitments in the Land of Smiles. It took up a 25.5% equity stake in Siam A&C Company Ltd.. The transaction sum was not disclosed.

A joint venture with Japan's ACOM Co. Ltd., Siam A&C is the Japanese parent company's first overseas subsidiary in Southeast Asia. It was incorporated in September 1996 with a paid-in capital of Baht120 million (US$3.1 million) and is currently 49%-owned by ACOM Co. According to the Bangkok-based rating agency, Tris Rating, as of June 2003, Siam A&C's assets represent only 0.1% of ACOM's total assets which stood at ¥2.2 trillion (US$21.35 billion). Siam A&C is regarded as a solid consumer finance company with good systems of credit risk and information management.

It was also planning to issue a Baht1 billion (US$25.6 million) bills of exchange which has a three year tenure. However, the International Finance Corp. ('IFC') as well as DEG, the development finance arm of Germany's Kreditanstalt fuer Wiederaufbau (Kfw) have both decided not to commit long term equity capital in TRUE Corp's latest round of private placement. Formerly known as TelecomAsia Corp., Thailand's largest private fixed line telephone company, it raised Baht2.7 billion. The IFC and DEG instead acted as financial arrangers (fig.8).

Asia Private Equity Review (APER) is the foremost voice on matters related to private equity/venture capital in the region. Well-recognised as being the singular source for accurate and timely news, in-depth analysis and global perspectives, APER is published by the Hong Kong-based Centre for Asia Private Equity Research. For further information please visit their website at www.asiape.com or email them at info@asiape.com