PRINT THIS PAGE Waiting for the winds 20/07/2005. Source: Asia Private Equity Review.
Greater China could potentially be Asia's buy-out Mecca as each market complements the others in developing buy-out, says the Asia Private Equity Review. In the Greater China market, Hong Kong is the undisputed centre of buy-out funds management, outside of Japan. The territory is home to four globally-known buy-out houses: CVC Asia Pacific, Newbridge Capital, JP Morgan Partners Asia and The Carlyle Group. Their combined fund pool amounts to US$3.3bn. Although buy-outs expertise is clearly absent in both mainland China and Taiwan, there is, however, significant movement taking place in these two markets. In the Greater China market, Hong Kong is the undisputed centre of buyout funds management, outside of Japan. The territory is home to four globally-known buyout houses: CVC Asia Pacific, Newbridge Capital, JP Morgan Partners Asia and The Carlyle Group. Their combined fund pool amounts to US$3.3bn. Although buyouts expertise is clearly absent in both mainland China and Taiwan, there is, however, significant movement taking place in these two markets.
In mid December last year, iD SoftCapital Inc., a venture fund management unit of Taiwan's Acer Inc., announced the establishment of a NT$1 billion (US$32 million) buyout fund. It was not only the island's second buyout fund but was also a signal that Taiwan's venture capital industry is ready to diversify into buyout situations.
On the other side of the Taiwan Strait, the State-owned Assets Supervision and Administration Commission of the State Council clarified its position with regard to management buyouts in state-owned assets.
As part of Beijing's intention to preserve the nation's valuable assets, the Council's communiqué expressed reservation in endorsing large state-own enterprises to facilitate MBOs. It is by far the most telling acknowledgement from Beijing that buyout activities are now prevailing in China's domestic capital market. However, bureaucratic obstacles hindered the growth of MBO activities, as well as mergers and acquisitions.
According to statistics released by Chinese government official sources, in 1997, there were 33 M&A cases among China's publicly-listed companies. By the third quarter of 2004, the number tallied up to 843. So far there are 24 known MBOs in listed companies (fig.6). These developments erased doubts as to whether the MBO is an alien concept to the business community in China.
Earlier reports from China-based publications unfolded ambitions harboured by senior management of China's largest enterprises. The Sichuan-based Chang Hong Electric Co. Ltd, the world's largest television maker, was planning a MBO. The plan was foiled when it failed to receive endorsement from the Sichuan municipality government. The senior management of the TCL Group was enwrapped in the prospect of executing a MBO before seeking publicly-listed status for its two subsidiary companies in Hong Kong.
In the evolution of buyout in the three markets of Greater China, mainland China, Hong Kong and Taiwan, each form a leg to the development of the buyout scene. If their respective resources are pooled together, the world's fastest economic growing region could become the most fertile buyout land in Asia. Significantly, it is the global buyout expertise of the Hong Kong-based fund management houses that companies in both mainland China and Taiwan could benefit from.
Where Hong Kong lacks a supply of institutional funds, Taiwan appears to be able to meet a petite portion of the demand. The island's Bank of Communications has committed no less than US$55 million to three buyout funds, one of which is in Japan. The China Development Industrial Bank has allocated an approximate US$200 million in at least four funds, with one in Japan.
The Taiwan Industrial Bank is currently considering a LBO Fund with an ambitious size of an approximate US$500 million. It is by far the most solid series of evidence that Taiwan's institutions are ready to diversify into other investment segments outside of venture capital.
It would appear that the buyout momentum is ready to take off in Greater China. But the recent position expressed by the Council might mean that foreign institutions that are interested in large buyout transactions will have to be more patient with Beijing.
The Chinese adage that "everything is ready, but what is lacking is the wind from the East" aptly describes the current situation in the Greater China buyout scene.
The above is an edited extract from the January 2005 feature article of APER Greater China, a sister publication of ASIA PRIVATE EQUITY REVIEW. Launched in November 2003, APER Greater China is the first private equity journal that is published in Chinese language and analyses the latest trend in the Greater China region.
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