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The Ugly Duckling - Malaysia has become a favoured investment destination for investors 12/03/2008. Source: Asia Private Equity Review (APER).
 Only two months into the year, Malaysia has become one of the most notable private equity investment destinations in the ASEAN. With at least three transactions known to have been, or close to being completed that represent an aggregate of no less than $665.8m, it is a statement of the revival of foreign investors’ confidence in Malaysia, writes the Asia Private Equity Review.
Despite the country’s firm control over its foreign exchange, this does not appear to have deterred a host of foreign private equity firms from entering into the market.
As an illustration of foreign investors’ keen interest in Malaysian assets, it has taken the Hong Kong based Primus Pacific Partners (‘Primus Pacific’) more than half a year to establish its foothold in the country. In late January, it received approval from Bank Negara Malaysia, the country’s central bank, to become a 20.2% shareholder in EON Capital through a capital deployment of 1.337 billion ringgit (US$413.95 million). The green light came after Primus Pacific raised its offer price for EON Capital’s shares to 9.55 ringgit each, representing a generous 2.16 times to the target bank’s book value. Primus Pacific first offered between 9.25 ringgit and 9.50 ringgit for EON Capital’s shares.
According to the domestic research firm, OSK Research, in mid November last year EON Capital’s risk-weighted capital adequacy stood at 12.69% compared to the industry’s average of 12.96%. At the same time, since August last year when Primus Pacific was first known to have an interest in EON Capital, its share price had first dipped below 6.5 ringgit, and then below 6.0 ringgit in December (fig. 20).
To some foreign investors, investing in those Malaysian companies with whom private equity investors had previously enjoyed successful partnerships provides a level of comfort and assurance. It has been five years since AirAsia Sdn Bhd first received funds from private equity investors. This time, Asia’s pioneer budget air operator is to journey with private equity investors again, albeit for the growth of its long-haul subsidiary, AirAsia X Sdn Bhd (‘AirAsia X’). Japan’s ORIX Corp. (‘ORIX’) and the Bahrainbased Manara Equity Partners will deploy an undisclosed sum to take a 20% stake in AirAsia X, which has already enlisted Virgin Blue as its 20% shareholder. According to various local reports, the investment sum is around 250 million ringgit. The funds raised will be used to purchase new aircraft.
ORIX will make the commitment through its private equity fund. Manara Equity Partners is in the process of being launched. It focuses on the energy and oil sector.
In July 2003, a clutch of investors including The Islamic Development Bank Infrastructure Fund LP, Crescent Venture Partners and Deucalion Capital, committed an aggregate of US$26.1 million to AirAsia X. Since then, all these investors have sold their holdings and booked handsome returns.
Although JP Morgan’s Principal Investment Management Group and GIC Special Investments Pte Ltd. have recently become the new shareholders of Malaysia’s Sabah Forest Industries Sdn Bhd (‘Sabah Forest’), they did not invest directly into the forestry company. Instead, they took a combined 21% stake in Sabah Forest through a subsidiary of the India-based Ballarpur Industries Ltd., Ballarpur Paper Holdings B.V.. The latter is a special purpose vehicle created for holding its parent organisation’s 97.78% interest in Sabah Forest. The transaction carried a price tag of US$175 million (fig. 21).
The cross-border deal would provide both investors not only access to Malaysian assets, but also a relationship with the Indian company. India has fast become a powerful business partner of Malaysia and, in 2006, India became Malaysia’s ninth largest trading partner. India has also recently entered a freetrade agreement with the Malaysian government which is expected to be finalised by the first quarter of 2009.
According to the Malaysian government ’s Ministry of International Trade and Industry, Malaysia’s manufacturing sector attracted a record foreign investment amount in 2007 at 33.4 billion ringgit, or US$10.37 billion. This is an exhilarating 65% increase compared to that for 2006. After more than a decade on the sidelines of the ASEAN economies, like an ugly duckling, Malaysia has grown to become a swan keenly courted by foreign investors.
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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