PRINT THIS PAGE Barrels of capital09/05/2007. Source: Asia Private Equity Review (APER).
Islamic financing is gaining momentum in Southeast Asia, says the Asia Private Equity Review. Rising oil prices have changed the dynamics of global financial markets. Capital from the Islamic nations, principally those in the Arab Gulf States, is fast becoming a third main stream, as investors from these countries venture outside their desert kingdoms. In Southeast Asia, home to the largest population of Islamic advocates, the rising profile of such financing is becoming increasingly conspicuous, with Malaysia being the centre of action. In mid February, the subsidiary of the Kuwait Finance House, Kuwait Finance House (Malaysia) Berhad, announced a joint venture agreement with Pacific Healthcare Holdings Ltd. The latter is a Singapore-based healthcare services provider, and is listed on the main board of the Singapore Exchange Ltd.
Under the terms of the joint venture agreement, Kuwait Finance House (Malaysia) Berhad will take up a 60% stake in the newly-created investment vehicle, Aliph Pacific Pte Ltd., with Pacific Healthcare taking up the residual 40%. Aliph Pacific will inject either cash, or equivalent assets, of S$32 million (US$20.86 million). Through this joint investment vehicle, Pacific Healthcare seeks to further expand its healthcare businesses in Asia.
The Kuwait Finance House (Malaysia) Berhad has targeted healthcare as one of its core investment sectors, and has identified Pacific Healthcare as its strategic partner. The latter was formed through the amalgamation of several medical specialist and dental practices, and was incorporated in January 2001. In November 2005, it became a publicly-listed company on the Singapore bourse through a public offer of 48 million shares, and raised S$14.4 million. Last year, it streamlined its operations by disposing of 10 of its total 13 general practitioner clinics for S$8 million, so as to focus on its higher-margin specialist healthcare and wellness businesses. Currently, the Singapore-based healthcare provider has operations in the Lion City, Hong Kong, India and China.
The partnership with Pacific Healthcare is, in fact, a very small undertaking of Malaysia-based Kuwait Finance House (Malaysia) Berhad, compared to the other deal that it is currently pursuing. It is mounting a fierce battle to access RHB Capital, the fourth-largest bank in Malaysia which is 65%-owned by the debt-ridden Rashid Hussain Bhd.. At the end of September, Rashid Hussain Bhd is estimated to be shouldering a debt pile of 4.5 billion ringgit (US$1.32 billion). The private equity investment arm of Kuwait Finance House has already agreed to pay 2.16 billion ringgit or US$618.9 million for the 33% stake in Rashid Hussain Bhd. which is currently being held by Utama Banking Group, being the single largest shareholder in Rashid Hussain Bhd (figs. 19 & 20).
Middle East investors are displaying strong interest to access Asia’s banking assets. The Hong Kong-based Primus Pacific Partners had earlier received approval from Malaysia’s central bank to enter into negotiations with Utama Banking Group as well. With a focus in the banking sector, one of Primus Pacific Partners’ shareholders is the Qatar Investment Authority.
By mid February, it would appear that Kuwait Finance House, the largest Islamic investment bank in the Persian Gulf, has succeeded in eliminating Primus Pacific Partners. But the domestic EON Capital Berhad has emerged as the financial institution that is at the opposing side of the negotiations table for this deal. Both bidders are flagging towering investment sums to the seller. The Malaysian arm of Kuwait Finance House indicated that it could be mobilising as much as US$3.4 billion when it succeeds in taking control of RHB Capital to create the target company into a leading Islamic bank, while EON Capital has tabled an 8.75 billion ringgit or US$2.73 billion takeover bid.
The interest to subsequently gain control of RHB Capital has even enlisted expression of interest from the country’s largest pension fund, Employees Provident Fund. At the beginning of March, the target bank has become the most sought-after financial institution in Malaysia, with interested parties adjusting their bid price in order to win control of it. According to market analysts, there is no quick solution to this high profile buyout.
Enriched by revenues coming from soaring oil prices, this surging pool of Islamic capital has placed Malaysia as the immediate beneficiary. In 2006, a number of funds sponsored by organisations from the Middle East have helped to shore up Malaysia’s private equity pool. Among them is the US$250 million South East Asian Strategic Assets Fund LP which seeks opportunities in infrastructure projects; as well as the Regional Ummah Investment Fund that has a pan-Asian focus in all situations. The latter also has a target size of US$250 million (fig. 21).
Global institutions are also warming up to the idea of taking positions in Malaysian stocks. Goldman Sachs has recently taken up a 7.06% position in Stemlife, a stem cell bank currently listed on MESDAQ, the second board of Bursa Malaysia (formerly known as the Kuala Lumpur Stock Exchange). Green Packet, a wireless internet broadband company, has also enlisted international institutional investors such as Fidelity Investment, as well as Saudi Economic and Development Corporation.
Since late last year, the Kuala Lumpur composite Index has risen by more than 30%, and has emerged as one of the best performing stock markets in the Southeast Asian region.
Malaysia’s neighbour, Indonesia, could also be the recipient of a huge undertaking from the Islamic Development Bank. According to sources, the giant financial institution could be sponsoring a US$1.5 billion infrastructure fund for Indonesia, with EMP Global LLC being the appointed fund manager. The Washington-based fund management firm is not only known for its expertise in infrastructure investments, but also for its strong connection in the Islamic world. It has long established an office in Bahrain.
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
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