Strength in numbers
A group of Asia’s principal national venture capital associations have formed a continental alliance that its founders hope will boost understanding of the asset class and co-operation among practitioners in the Asia Pacific region. Ricky Morton reports.
If there is any truth in the saying ‘bigger is better’, then greater awareness of private equity should follow the formation of the Asia Pacific Venture Capital Alliance (APVCA), an international grouping comprising many of the leading national associations in Asia under one umbrella.
Plans for the alliance were first mooted in late 2001 when the national associations of six of the region’s largest markets set out a series of proposals to establish a higher level of cooperation and networking between their respective members. In November last year, the alliance, which will represent over 500 venture capital and private equity firms, collectively managing in excess of $90bn, formalised the arrangement, appointing Singapore’s association vice-chairman Alain Vandenborre and Kevin Yip, vice-chairman of Hong Kong’s association, as joint chairmen of the new alliance.
The APVCA consists of eight associations in the Asia Pacific region, namely the associations of Hong Kong (HKVCA), Indonesia (AMVI), Malaysian (MVCA), Singapore (SVCA), Korea (KVCA), Taiwan, Thailand and Japan. In addition to Yip and Vandenborre, Dali Sardar, president of the Malaysian Venture Capital Association, has been appointed as the honorary secretary, and Mark Wong, board member of the Indonesian venture capital association, has been appointed treasurer. Officers of the Executive Committee will be elected annually, with two permanent secretaries based in Malaysia.
“Unlike the US and Europe, where similar associations have existed for over 25 years, the venture capital industry in the Asia Pacific region has lacked a united voice when it comes to the key issues affecting the region,” says Alain Vandenborre, who is also president of Viventures’ advisory committee in Asia. “One of the primary tasks facing the APVCA will be to make ourselves known on the international stage.”
Although important, the alliance’s remit will extend beyond providing its members with improved networking and visibility within the region. One of the Association’s most significant challenges will be to work to establish a set of best-practice criteria that attempts to harmonise the various regulatory environments under which private equity firms and investors must operate in the respective member states. “Each of the participating nations, which currently operate under different policies and tax regimes, will work towards establishing a set of homogenised guidelines that will benefit private equity and venture capital investment across the region,” says Vandenborre. The formulation of standardised guidelines is seen as the key responsibility for the APVCA. This will also go hand-in-hand with efforts to publish more substantive and up to date data on private equity activity in the region. The widely held view, and one shared by both Vandenborre and Yip, is that European and US institutional investors have long been wary of committing further capital to the Asia Pacific region because of a lack of comprehensive data. “It is important for us to be able to provide data on the industry, including its size, performance and structure, which will enable international investors to better structure their investment programs in Asian venture capital and private equity firms.” Any improvement to the fundraising environment in the region will come as a welcome boost to the industry. According to data published by the Asia Venture Capital Journal, total funds raised in 2002 shrank by nearly 70 per cent to $2.99bn, down from the $9.92bn raised in 2001.
“It is important for us to be able to provide data on the industry”
The APVCA has already held its First Roundtable Discussion that took place in Singapore last year, and brought together more than 100 venture capitalists from the region to network and discuss issues relevant to their industry. 2003 will see the commencement of a series of three-day training programmes for fund managers. According to Vandenborre, the alliance will also team up with international research bodies and hopes to have the APVCA’s first research paper published by the end of 2003.
The APVCA has received backing from the Malaysian government, which has agreed to provide a $100,000 launching grant to the alliance. In addition, the SVCA has also contributed over $15,000 to the alliance. Kuala Lumpur will also play host to the second APVCA Annual Roundtable Discussion this coming June, where it is hoped that venture capitalists from all over the region can begin the process of establishing a code of best practice.
Asian fundraising slumps but investment firm
Although deal flow remains robust, evidencing the view that there are good companies to buy in Asia at compellingly low prices at present, the latest research reveals that fundraising by Asian private equity firms fell by almost 70 per cent in 2002.
The total amount raised last year fell from just under $10bn ($9.92bn) in 2001 to $2.99bn for 2002, according to data published by the Asian Venture Capital Journal. However, the global downturn did little to stifle investment in Asia, which at $10.45bn was only seven per cent down on the $11.23bn invested in 2001.
Major funds focusing on Asia that closed in the past year included the Carlyle Group’s Carlyle Asia Venture Fund at $170m and Baring Private Equity Partners Asia’s second pan-Asian fund, which closed below its original $350m to $400m target at $257m.
The latest data also reports on the level of exits in the region. Around 40 major exit transactions were recorded in 2002, with a total value of $5.65bn. Notable deals included the H&Q Asia Pacific consortium’s sale of Good Morning Securities, UBS Capital offloading SDL Leasing and Goldman Sachs and Baring Asia’s sale of their stake in Kookmin Bank.
CLSA raises second Asia fund
Hong Kong-headquartered CLSA Private Equity has raised $69m in a first close for Aria Equity Partners II, a private equity fund that will focus on mid-size companies in Asia. CLSA says its final target for the fund is $150m. Although details of those investing in Aria have not been disclosed, the firm says the majority of the capital raised has come from a core group of international pension funds, financial institutions and insurance companies.
The firm said the new fund will not be restricted to any particular sector, but will target established businesses well positioned for growth, with strong management and a clear competitive advantage. The fund seeks to invest $5m to $15m per deal, holding its investment for one to five years. Joint managing director Richard Pyvis commented in a statement: “Current market conditions make this the ideal time to be investing. Asia is experiencing growth and valuations are very reasonable.”
Warburg Pincus invests in South Korea
New York-based private equity firm Warburg Pincus has confirmed that it intends to invest around $400m in Shinhan Finance, South Korea’s fourthlargest lender and the frontrunner to buy government controlled Chohung Bank. Shinhan, launched last year to group together various commercial banking, brokerage and non-banking businesses in Korea, has been picked as the preferred bidder in a multi-billion dollar race for state-owned Chohung Bank.
Warburg Pincus, which also announced the opening of its Beijing office, the firm’s first in the People’s Republic of China, has invested more than $1.5 billion in the Asia Pacific region since it opened its first office in Hong Kong in 1994. The firm subsequently has opened offices in Seoul, Singapore and Tokyo.
Lone Star leads construction buyout
US private equity firm Lone Star has reached a preliminary agreement to acquire South Korean company Kukdong Engineering & Construction in a $206m buyout. Founded in 1947, Kukdong Construction has been under court receivership since 1998. In the nine months to September 2002, Kukdong achieved net profits of $23m on sales of $190m.
Paul Yoo, head of Lone Star in Seoul recently said that the firm was set to invest $5.7bn, representing 30 per cent of its funds, in South Korea over the next few years. In November, Lone Star received the goahead by Japan’s courts to proceed with an acquisition of collapsed Japanese mortgage lender First Credit in a deal expected to top $816m. Lone Star has also been short listed, alongside Goldman Sachs and Starwood Capital, from 16 applicants to sponsor the restructuring of failed Japanese golf-course operator Chisan Co.
Castle Harlan acquires APPP
New York-based privateequity firm Castle Harlan has completed the purchase of Australian Pacific Paper Products (APPP) from DSG International in a management buyout valued at A$53m ($29.7m). Equity for the acquisition was provided by the CHAMP I Fund, managed by Sydney-based Castle Harlan Australian Mezzanine Partners (CHAMP) and Castle Harlan. Westpac Banking underwrote the debt financing for the transaction. Melbourne-based APPP was founded in 1988 and is Australia’s second largest manufacturer and distributor of disposable diapers and adult incontinence products with annual sales of A$100m. It employs approximately 225 people and produces more than 300 million branded and private-label diapers per year. The deal is Castle Harlan’s second recent transaction in Australia. Prior to investing in APPP, the firm’s CHAMP unit sponsored a $34.5m reorganisation of United Australia Pacific, making it the largest shareholder in Austar United Communications, a provider of subscription satellite television services. CHAMP and United Australia Pacific now own just over 80 per cent of the Queensland-based company.