As the financial crisis was unraveling in the US and Western Europe, and obtaining credit for large private equity deals became almost impossible, many private equity practitioners maintained that Asia would not be as adversely affected and that Asian economies would still provide plentiful investment opportunities.
However, a handful of large Asian deals have been put on hold or abandoned because private equity firms have failed to garner the required amount of capital from banks.
For example, telecommunications provider PCCW cancelled the sale of a 45 percent stake in HKT, its IT, telecommunications and media business, because “the recent market downturn has significantly impacted the offers received”, the company said in a statement. MBK Partners, TPG, Providence Equity Partners and Macquarie had reportedly made it through the first round of bidding. The deal would have been worth about $1.2 billion, according to a banking source involved in the deal. UBS was advising PCCW on the sale, and had promised to underwrite one-third of the debt. It needed at least two other banks to provide the remainder, the source said. However, no banks were willing to do so.
A few days prior to PCCW's decision, Shenzhen-based Huawei Technologies cancelled plans to sell a stake of around 50 percent in its mobile products unit to private equity firms, citing similar concerns. Bain Capital and Silver Lake Partners were the remaining bidders, having edged out Kohlberg Kravis Roberts and Goldman Sachs.
Huawei said in a statement: “Given current global market conditions and prevailing economic uncertainty, the interests of the company are best served by postponing the sale process.” The deal was expected to fetch roughly $2 billion.
Firms are facing similar problems elsewhere in Asia. Earlier this year, Japan-focussed buyout firm Unison Capital was leading a consortium of investors including CCMP Capital to acquire Daito Trust Construction, a Japanese real estate development company, in a deal that could potentially have been worth more than $6 billion. However, that deal too was shelved as the potential buyers could not raise enough money after Mizuho Corporate Bank decided not to finance the deal, Reuters reported.
In October, Temasek initiated the sale of PowerSeraya, the third Singaporean power generation company it wants to divest. The company is expected to fetch about $2.5 billion, but a deal is not likely to happen anytime soon, according to the source. Banks have already turned down approaches to fund the deal, the source said.
The view that global firms can flock toAsia to deploy capital they're sitting on now appears increasingly unrealistic.