Feeling the pinch

Credit woes finally strike Asia, as a handful of big-ticket private equity deals are scrapped

As the financial crisis was unraveling in the US and in 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 the Asian economies would still offer up opportunities to firms to deploy their capital.

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.

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 and 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 roughly a 50 percent stake in its mobile products unit to private equity firms citing similar concerns. Bain Capital and Silver Lake Partners had emerged as the remaining bidders that submitted formal offers, 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 that it wants to divest. The company is expected to fetch about $2.5 billion, but it is also a deal that 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 firms can flock to Asia to deploy capital they're sitting on, now seems to be more myth than fact.

Huawei Technologies has blamed unpredictable market conditions for its cancelled plan to sell a majority stake in its mobile products unit for $2 billion in what could have been one of China's largest-ever private equity deals. Bain Capital and Silver Lake Partners were widely tipped as likely buyers.

Private equity investments in New Zealand dropped to NZ$88 million (€41 million; $61 million) in the first half of 2008, compared with NZ$1.1 billion in the corresponding period of 2007. The value of venture deals over the same time periods fell from NZS$56 million to NZ$23 million.

Oaktree Capital Management of the US has struck a “strategic partnership” with the W229 trillion (€120 billion; $165 billion) Korea National Pension Service to explore investment opportunities in Korea. The partnership may be pursued by way of co-investments or commitments to Oaktree funds, said the pension's head of global investments, Daeh-hwan Kwag.

The Securities Commission of Malaysia has approved the application of Japan Asia Investment Company to become the first foreign venture firm to operate in Malaysia. The Tokyo-listed firm, which has $1.4 billion in assets, joins 57 active local venture funds.

The Limited Partners Association of China has been formed to promote communication among Chinese and international limited partners. Members include Pantheon Ventures and Adams Street Partners.

Mumbai-based IDFC Private Equity has closed its third infrastructure fund on $700 million. All commitments were secured by May this year, but the fund had to wait five months for regulatory approval. It had a target of $600 million.

The Blackstone Group has paid $600 million for a 20 percent stake in state-backed China National Bluestar, a chemicals company, more than a year after the deal was first announced.

Japanese buyout firm Unison Capital has raised about ¥120 billion (€896 million; $1.2 billion) for the second close of its latest fund, a limited partner in the fund told sister website PrivateEquityOnline. Unison is targeting a final close of ¥200 billion by the end of the year.

The India Infrastructure Fund – a joint venture between the Indian government, Citi, The Blackstone Group and India's Infrastructure Development Finance Company – has raised $900 million to date, according to a source. The fund was launched in February and is aiming for $5 billion in equity and debt to finance infrastructure development in India.

India-focussed Swiss private equity firm BTS Investment Advisors plans to launch two private equity funds, each in the range of $200 million to $300 million, over the next two years according to India's Business Standard. BTS has two existing funds with a total of about $100 million under management.

Australian investment manager AMP Capital has appointed Xiao Wei as co-head of infrastructure Asia. Wei will be based in Beijing and source opportunities for the AMP Capital Asian Giants Infrastructure Fund, which hopes to raise $750 million for investments mainly in India and China.

New York-headquartered private equity firm Quadrangle Group is expanding its operations to Asia with the opening of a Hong Kong office. Managing principal Edward Sippel is moving from New York to lead the office.

Middle East and South Asia-focussed private equity and real estate firmHBG Holdings has hired Razak Dawood, Pakistan's trade and industry minister from 1999 to 2002. Dawood will advise the Dubai-headquartered firm on its investments in South Asia.

Two partners at US venture firm Charles River Ventures, Swapnil Shah and Devdutt Yellurkar, are to shift their focus to Indian investments, according to a spokeswoman for the firm. The spokeswoman declined to comment on reports in India's Economic Times that Charles River was raising a $150 million India-dedicated fund as well as opening offices in Bangalore and Mumbai.

Liu Lefei, chief investment officer of China Life Insurance Company, a Beijing-based insurer, will succeed Au Ngai as chief executive of the Bohai Industry Investment Fund, China's pioneer domestic private equity fund, according to The Wall Street Journal.