Hong Kong: Asia deal makers and financial sponsor bankers have taken to the skies again after a travel clampdown late last year as corporate purses were tightened in the global slowdown.
And China is the most popular destination, for deals and money.
The world’s top private equity firms, including The Carlyle Group, Bain Capital Llc and Texas Pacific Group (TPG), have raced to sign deals with Chinese companies across the business spectrum, from telecom service providers to baby formula makers.
At the same time, many private equity funds, banks and even law firms have closed offices and cut staff numbers in other major Asian economies such as India and Japan.
Wings of desire: Nanpu Bridge in Shanghai. The world’s top private equity firms have raced to sign deals with Chinese firms across the business spectrum, from telecom service providers to baby formula makers. Bloomberg
“Valuation is becoming attractive again and, of course, China is the focus,” said X.D. Yang, a managing director for Carlyle’s buyout fund in Asia.
Washington, DC-based Carlyle has been actively making deals in the Greater China region in recent months, including two in the past 10 days. Yang said this reflected that valuation levels have became attractive again after sharp declines in equity prices worldwide late last year.
Hong Kong-based Yang said his travel agenda is filling up, and he often spends more of his week in mainland Chinese cities than in Carlyle’s Asia head office in Hong Kong.
At least 50% of the audience at the SuperReturn Asia Conference in Hong Kong last week voted China as the place for the best investment returns in the next three years, a straw poll conducted by the forum’s organiser showed. India ranked second, polling less than 20% of the votes.
While Warburg Pincus Llc is reducing staff in Mumbai, according to a source familiar with the issue but not authorized to speak to the media, and Bank of America-Merrill Lynch is closing its private equity team in Tokyo, global investors such as Carlyle and TPG are adding professionals in Hong Kong and Beijing hoping to tap more China deals in this round of economic recovery.
“There’s too much money going into india, but not enough to exit from India,” said Ajay Relan, co-founder of India-focused private equity firm CX Partners.
“If this continues, this will be a problem for India,” he said, adding that opportunities for buyout deals in India remain limited as local entrepreneurs are unwilling to cede control of their businesses.
Buyout opportunities for private equity firms among Indian companies are limited because Indian firms find it easy to list on the domestic stock market and many family businesses are not up for sale, Carlyle’s Yang said during last week’s conference.
“It seems easier for Indian companies to do initial public offerings in the local market, so private equity investment to them is like an option and many Indian entrepreneurs are unwilling to sell their business ownerships,” he said.
Yang added that despite difficulties in making controlling deals in Asia, private equity firms should try to maintain some influence over portfolio companies’ management and business operations.
He also expected valuation levels to rise in the next 20 months, and thereby competition for private equity firms to secure good deals in Asia would become fiercer.
Global buyout firms such as Blackstone Group are launching yuan-denominated private equity funds after seeking to raise more money for deals in China, where foreign exchange controls are strict.
“The next one to two year period will be a golden opportunity for private equity firms in Asia,” said Michael Kim, a former senior Carlyle executive, who founded MBK Partners.
“It’s a rare time for us. China is definitely one focus,” said Kim, whose company also focuses on South Korea and Japan.
Narayanan Somasundaram in Mumbai and Junko Fujita in Hong Kong contributed to this story.