Asian private equity activity slows down

Private equity fundraising, investments and exits in Asia Pacific have dropped significantly in the first first half of 2008.

Fundraising for the Asia Pacific region in the first six months of 2008 has dropped by 21.5 percent compared with the same period last year, a study has revealed. In the first half of this year, a total of $19.2 billion (€12 billion) was raised for Asia Pacific compared with the $24.5 billion raised in the first half of 2007.

According to findings from the Asian Venture Capital Journal (AVCJ), while total private equity capital under management has increased at a rate of 15.6 percent per annum so far this year, it is considerably slower than last year’s growth rate of 20.3 percent.

Total fundraising in the first half of 2008 as compared to last year’s first six months dropped 34 percent to $1.9 billion in Japan and 75 percent to $775 million in Australia. Fundraising numbers also declined by 20 percent in China, 96 percent in Singapore and 48 percent in Vietnam.

Hong Kong, however, saw a 115 percent increase in fundraising, with $7.2 billion raised by Hong Kong-based funds. According to the report, the presence of Chinese sovereign funds and companies that have begun investing in the asset class could be driving a shift in fundraising from Singapore to Hong Kong.

Coupled with the decline in fundraising is the decline in investments in this period. Investments in the first half of the year stood at $32.4 billion, a decline of 22.7 percent from 2007’s first six months. Australia, Hong Kong and Singapore led the decline, with investments in all three countries falling by more than 50 percent.

However, South Korea and Japan witnessed a surge in investments while India and China too saw modest gains. Investments in South Korea increased from $471 million to more than $1.5 billion, a 225 percent increase; Japan saw a growth of 61 percent to $8.9 billion; and investments in India and China stood at $6.8 billion and $5.8 billion, reflecting modest rates of 3.2 and 3 percent respectively.

Private equity exits in the region have dropped considerably over the last six months as well. The value of private equity-backed IPOs fell by 41 percent while M&A exits were down by 20.5 percent.

The effects of the credit crisis were evident in the decline of buyouts and in the increase in turnaround and restructuring deals. Buyouts dropped to 31 percent of the region’s deals in the first six months, as compared to 64 percent in the first half of 2007 and 47 percent for the whole of 2007. Turnarounds increased from just 1.1 percent of all deals last year to 9.5 percent of deals so far this year. The proportion of expansion capital and PIPE deals also increased in the first six months of this year.
In terms of sectors, financial services and TMT received the largest share of investments with 21 percent and 11 percent respectively, though there were both not as dominant as last year. On the other hand, the manufacturing, construction, and travel and hospitality sectors received a larger share of investments than they did last year.

The region on the whole is not doing as well as it was last time this year and certain markets such as China, India and South Korea continue to do well across most parameters, the report noted.