Chartered for growth
Assets owned by Temasek, the giant government-controlled holding company, account for over 20 per cent of Singapore’s stock market. Last month’s sale by Singapore Telecom, which is part-owned by Temasek, of its yellow pages business to financial investors was a sign that some of these assets may soon be in play. Private equity investors should take notice, says Ricky Morton.

In June, while attention in Europe focused on the €5.65bn acquisition of Telecom Italia’s directories business Seat Pagine Gialle, two of Asia’s biggest private equity investors were putting the finishing touches to a landmark deal of their own – in the same sector.

After an auction lasting six months, CVC Asia Pacific and JP Morgan Partners won the bidding for Singapore Yellow Pages with a $127m joint offer. The pair beat off competition from ten rival bidders, including financial investors such as The Carlyle Group and trade buyers including Telstra, Australia’s largest telecommunications company.

The deal, like so many buyouts at present, was driven by vendor SingTel’s decision to sell off a non-core asset to focus on operations in other areas. “SingTel is in better health than most telcos worldwide but the company wanted to use the capital for further investment elsewhere. The directories unit is really a publishing business,” says Alan Hyslop, director at PPM Ventures in Singapore, who followed the deal closely.

From an M&A point of view, the most significant aspect of the transaction was that it took place in a market where there had not been much evidence that it was indeed possible for private investors to acquire companies with state backing. Singapore Telecom is part owned by Temasek Holdings, the investment company controlled by the city-state’s Ministry of Finance. Temasek has interests in virtually all of the state’s major corporations, including Singapore Airlines, Singapore Technologies, Neptune Orient Lines-APL, PSA Corporation, DBS Bank and Singapore Power. The listed companies in Temasek’s portfolio account for approximately 21 per cent of the market capitalisation of the Singapore Stock Exchange.

Last summer, the Singapore government unveiled The Temasek Charter, which detailed plans to dispose of ‘non-core’ interests held by the Ministry of Finance’s investment vehicle. The divestment programme was greeted by many as a potential catalyst for a future pick-up in M&A activity in Singapore.

The charter distinguishes between three types of businesses in Temasek’s portfolio. First, it stipulates which holdings should be retained by the public sector. These include gaming, public broadcasting, subsidised services in healthcare, education and housing, and encompassing various public amenities (including Singapore’s zoo and bird park).

In a second category, the charter lists businesses which its shareholders believe depend on geographic expansion beyond Singapore in order to sustain growth. These businesses include the stateowned DBS Bank and PSA Corporation, the container terminal operator at the port of Singapore, which is one of the world’s busiest ports. Temasek is open to companies in this second category partnering with strategic or financial partners “to regionalise or internationalise where it makes strategic or commercial sense.”

However, it is in the third group of companies referenced in the document where the opportunity for financial investors is most tangible. The government has agreed to divest its stake in businesses which it says are no longer strategic to Singapore or relevant to Temasek’s mission – “to build a future for Singapore through nurturing successful and vibrant international enterprises.”

Temasek holds interests in a broad range of industries, including finance, telecom and media, transport and logistics, property, infrastructure, engineering and utilities. As these companies attempt to re-focus in a changing economic climate, a sizeable opportunity for private equity investors appears to emerge, although there is a caveat. As Hyslop explains: “The definition of core and non-core assets tends to be somewhat different in Singapore than elsewhere. Core businesses tend to be those that make a profit, whereas non-core operations are frequently moribund, loss-making businesses which are not necessarily attractive to financial buyers.”

Sure enough, since the charter was announced last year, there has not been the flurry of activity that many expected. For example, a protracted attempt by management to buy NatSteel, Singapore’s national steel company, ended in failure.

“The deals have been slower to materialise than people may have wished,” says Ian Gibbs of Crosby Asset Management. Hong Kong-headquartered Crosby provides corporate advisory and asset management services across the region. In mid-June, Crosbny teamed up with divisional management at Temasek-controlled SembCorp Parks Holdings to acquire SembCorp’s buildings materials companies and roll them into a new entity called TM Tarah in a S$39m MBO. “The deal is symbolic because it shows that this sort of transaction can be pulled off,” explains Gibbs. He believes that the services industries in particular will produce most of the MBO opportunities going forward.

Meanwhile even the statisticians are sensing that Singapore’s deal market is becoming more active. Recent figures from Thompson Financial indicate that Singapore accounted for 36 per cent of total private equity capital raised in Asia in 2002, and enjoyed a 15 per cent increase in venture capital investment last year, to $226.9m.

Nonetheless the challenge remains to persuade financial investors that the city-state can deliver on the promise of opening up the market to overseas investors. “There has been a greater outflow of private equity firms than inflow in recent years,” says Gibbs. It may take further inroads into the Temasek empire before private equity investors become truly bullish about the Singaporean opportunity.


Deutsche targets A$175m for Australia Fund II
DB Capital Partners, the Sydney-based Australian private equity arm of Deutsche Asset Management, has launched the Deutsche Private Equity Fund II, targeted at A$175m ($117m) from both local and international limited partners.

The fund’s investment strategy will focus on expansion capital opportunities involving a broad spread of industries. Deutsche Bank has committed a cornerstone investment of A$30m to the fund.

“The key objective of DPEFII is to provide investors with a significantly higher rate of return than is available from listed securities,” Peter Dowding, managing director of DB Capital Partners and fund manager for DPEFII, said in a statement. “We will primarily target local superannuation funds, but are also confident of raising funds from international sources, given the fund’s venture capital limited partnership structure which provides tax benefits to offshore investors.”

DB Capital also announced in the statement the tenth deal from Fund I, the buyout of Hudson Building Supplies, a timber and building materials specialist with 19 stores in New South Wales, Queensland and Victoria, from Hudson Timber & Hardware for A$14.25m on 30 May.

HSBC buys stake in Korean shipbuilder
HSBC Private Equity Asia, the Asian direct investment arm of banking and financial services group HSBC, has acquired a 22 per cent stake in STX Shipbuilding Co of Korea for $33.56m.

HSBC Asia acquired some 3 million shares in STX, making the firm the first foreign and second biggest shareholder in the business after parent STX Corp, according to Asia Pulse. The disposal to HSBC effectively reduces STX Corp’s holdings in the shipbuilding company to 54 per cent.

STX Corp, a maker of ship engines, bought a 98 per cent stake in STX Shipbuilding in late 2001 when the shipbuilder was lifted from court receivership, but it sold a 30 per cent interest through a public offering in May last year.

HSBC Asia is currently raising its third fund, targeted at $300m, for investment primarily in middle-market opportunities across China, Hong Kong, Taiwan and South Korea. In June, HSBC participated alongside Intel Corp and BNP Paribas in a $15m funding round for Maipu Holdings, a Chinese maker of networking equipment.

CVC, JP Morgan acquire Singapore Yellow Pages
CVC Asia Pacific, Citigroup’s Asian venture capital arm, and JP Morgan Partners Asia have acquired Singapore Telecommunications (SingTel’s) Yellow Pages directories business for approximately S$220m ($127m) in cash.

Yellow Pages publishes six main telephone directories with a combined circulation of 3.1 million copies, and reported total sales of S$83.5m for the year ended March 31, 2002. Yellow Pages makes up approximately two per cent of SingTel’s domestic business in terms of revenue.

The winning partners beat out competition for the business from approximately ten other bidders, including Telstra, Australia’s largest telecommunications operator, which sought to add the company to its advertising subsidiary Sensis.

CVC has a $750m investment program for Asia, while JP Morgan Partners Asia has a $1.1bn fund dedicated to fund buyouts in the Asia region.

Carlyle, 3i lead $30m Chinese investment
Carlyle Group announced in June that it would lead, with a $22.5m capital contribution, a $30m series B round of financing for Amperex Technology Limited (ATL), a China-based manufacturer of rechargeable lithium-ionpolymer batteries. 3i agreed to co-invest. Funding from the round is meant to be used for working capital and research and development, and to increase manufacturing capacity.

Carlyle described ATL as a “notable example” of next generation Chinese businesses making a mark in the global technology arena. The rechargeable battery market is forecasted to grow at more than 12.5 percent annually, exceeding US$10bn by 2010.

Gabriel Li, managing director of Carlyle Asia Technology Fund, described the deal as “an ideal Asian technology investment. ATL has leading polymer battery technology, is located in the lowest manufacturing cost location in the world, and is selling to global multinational companies.”