Deals – October 2007

Blackstone bets on Indian construction * CLSA leads $60m Chinese water financing * Longreach, Phoenix in IT bail-out * Another Oz buyout fails * Chinese VCs busier than ever * US hedge funds bail out Taiwanese bank

Blackstone bets on Indian construction
Following the credit crunch, smaller deals will be the way forward, The Blackstone Group said in August in its first-ever results statement as a public company. Shortly afterwards, the firm announced a $150 million growth capital investment in Nagarjuna Construction Company, an Indian group it hopes will benefit from the government’s increasing expenditure on infrastructure. Blackstone has taken a 12.5 percent stake in the listed company.

Nagarjuna is the third largest construction services company in India. It is active in road, water and electricity projects and has recently expanded into areas such as power, oil and gas. Blackstone will have a seat on its board. A spokesman said: “This is an infrastructure play which is set to benefit from the Indian government’s five-year plans, especially as the Blackstone brand will help the company secure tougher contracts.”

Nagarjuna’s books were full for the next two years, he said.

Nagarjuna is listed in India on the Bombay Stock Exchange.

CLSA leads $60m Chinese water financing
MezzAsia Capital, a pan-Asia mezzanine fund managed by CLSA Capital Partners, has led a $60 million financing deal for Singapore-listed Asia Water Technology. It is the third investment for the pan-Asian mezzanine fund in twelve months. Asia Water specialises in water purification and wastewater treatment in China.

Stephane Delatte, managing director of CLSA Mezzanine Management, said: “China has about one-quarter of the average per capita water supply in the world, and 136 of its cities face severe water shortages.” Delatte added that the pollution in China was aggravating the water shortage, meaning that Asia Water was well placed to participate in the development of the water-related investments needed.

Longreach, Phoenix in IT bail-out
The Longreach Group, a private equity firm that operates from Tokyo and Hong Kong, has agreed to invest ¥13.5 billion ($118 million) for a 67 percent stake in NIWS, a Japan-listed provider of IT integration services. The firm will subscribe to common shares worth ¥6.5 billion and ¥7 billion of preferred shares. Phoenix Capital, a Japanesedistressed fund investor, will also invest ¥6.5 billion in preferred shares. The investment is subject to shareholder approval at an extraordinary general meeting to be held in late October.

Longreach will finance the deal with 100 percent equity from its $750 million fund, a spokesperson told PEI Asia.

NIWS, which was founded in 1992 as a joint venture between IBM Japan and Nomura Research Institute, recorded an operating loss and became insolvent for the fiscal year to June 2007 after rapid expansion efforts failed. This created losses on software assets and costs that resulted from its withdrawal from certain businesses, according to a statement.

However the core business of the company, which listed on the Tokyo Stock Exchange in 2002, is still providing a stable cash flow, according to the Longreach spokesperson. Mark Chiba, Longreach chairman and partner, said: “Our team of senior professionals and advisors possesses considerable expertise in the technology sector, which is one of our main focus areas.”

Another area of focus for Longreach is financial services: in June, the firm acquired a controlling stake in Taiwan’s EnTie Commercial Bank, in a transaction worth $692 million.

Another Oz buyout fails
The board of Coates Hire, an Australian listed equipment rental company, has rejected proposed takeover offers from third parties including The Carlyle Group, on the grounds that they have “failed on price”. Carlyle and National Hire Group, a strategic investor, were offering the equivalent of A$6.25 a share in cash, valuing the company at more than A$1.5 billion ($1.27 billion), according to local media reports. On 29 August, the day of the rejection, Coates shares closed at A$5.35. Carlyle declined to comment.

Chinese VCs busier than ever
Blogging and social networking are among the drivers behind a recent surge in venture capital investment activity in China. According to numbers compiled by Dow Jones VentureOne and Ernst & Young, the second quarter of 2007 produced 55 deals worth $560 million on the Mainland, up 49 percent on the $375 million in Q1.

Investment in information services offered by Web 2.0 companies accounted for $209 million of the Q2 total, more than ever before. “As investors move to monetise China’s internet, we’ve seen a consistent increase in the amount of capital invested in IT deals,” said Bob Partridge, head of transaction advisory services in China for E&Y.

The IT investment boom is in sharp contrast to venture trends in China’s healthcare industry, with just $13 million put to work in three transactions during the period.

US hedge funds bail out Taiwanese bank
SAC Private Capital, the private equity arm of US hedge fund group SAC, and GE Money are injecting a combined $900 million for an 80 percent stake in Taiwan’s Cosmos Bank.

The two groups are buying shares and bonds at NT$2 per share, which represents a discount of about 63 percent to Cosmos’ closing price of NT$5.47 on the Taiwan Stock Exchange on 31 August, the last day of trading before the bid, the Financial Supervisory Commission (FSC) said in Taipei. Under terms of an agreement, SAC will invest $650 million in new preferential shares and convertible bonds to improve the troubled bank’s financial structure, according to a statement from Cosmos.

Cosmos had been under heavy pressure to find investors suitor to help it recapitalise to make up for losses it suffered due to defaults of its consumer credit loans. Cosmos managed to clinch the deal on a deadline set by the FSC, after which it faced a possible government takeover.