Netty Ismail/ Bloomberg
Singapore: 3i Group Plc, Europe’s biggest publicly-traded buyout and venture capital firm, is expanding in Asia, home to the world’s two fastest-growing major economies, as competition from other buyout firms intensifies in Europe.
The firm plans to boost investment in Asia by as much as 78% this year as it seeks controlling stakes in companies.
London-based 3i’s total spending here will rise between $700 million (Rs3,080 crore) to $800 million a year as it eyes buyouts and infrastructure projects, shifting from a strategy of acquiring minority stakes in companies it expects will grow, Chris Rowlands, 50, managing partner for Asia, said in an interview.
3i spent $450 million in Asia in 2006, including investments in Singapore-based Asia Capital Reinsurance Group and companies that are part of India’s Sonalika Group, a tractor and utility-vehicle manufacturer. Purchases in the region could return as much as five times the invested capital, said Rowlands, compared with about two-to-three times in Europe. Rowlands, is a member of 3i Group’s eight-member investment committee.
“To date our strategy has been growth capital, where we’re investing minority shareholdings in fast-growing businesses,” said Rowlands, who moved to Singapore from London in January to become 3i’s first managing partner based in Asia. “We will, more formally, develop our buyout business in the near future.”
3i must beat rivals including US-based Carlyle Group and Bain Capital LLC that are also flocking to the region.
“In Asia, it has typically been the case that private-equity firms take minority investments but that’s not their preference,” said Colin McKay, who heads the private equity and transaction services division at PricewaterhouseCoopers LLP. “They want to take majority stakes because that’s how they derive value from the companies that they buy.”
Buyouts in Asia rose fivefold to $32.7 billion last year, accounting for 64% of private-equity investments in the region, according to Asia Private Equity Review. Other types of private equity include venture capital, infrastructure and so-called mezzanine transactions, which typically involve a mix of debt and equity financing.
Global buyout firms invested in nine of the 12 deals in Asia that were valued at more than $1 billion last year, according to the Asia Private Equity Review. CVC Asia Pacific, together with parent London-based CVC Capital Partners Ltd, made three investments in the region valued at more than $2 billion each.
Finding companies whose shareholders are willing to relinquish their majority control will also take time, Rowlands said. 3i is adding as many as 12 investment professionals to its team of 28 in Asia this year.
The International Monetary Fund in September forecast the Asian economy, excluding Japan, will expand 8.6% in 2007, outpacing 4.9% growth for the global economy. China’s economy grew 10.7% last year and the government expects India’s to expand 9.2% in the year to 31 March.
“Southeast Asia is where we’re hunting feverishly at the moment,” Rowlands said. “I would expect over the next six-12 months to have some success with that.”
3i also seeks to invest in ports, power and other infrastructure projects, particularly in India, Rowlands said. Prime Minister Manmohan Singh’s government estimates $320 billion of investments are needed in five years to upgrade transportation and power networks to sustain growth.
3i has invested in nine companies in India since August 2005, when it bought about one-third of Nimbus Communications, a Mumbai-based film company, for $45 million. It invested $27 million more in Nimbus and invested $22 million in UFO Moviez, a digital cinema chain, in January.
3i’s strategy in China, where the government is blocking foreign takeovers of strategic industries, “is to invest as a minority shareholder in growing companies rather than to be buying state-owned assets,” Rowlands said.
—With reporting by Leslie Tan in Singapore and Paul Gordon in Hong Kong.