Asia

Total Investment $m

2000 2001 2002
Australia 639 1,261 1,210
China 858 1,575 350
Hong Kong 2,426 1,846 750
India 830 1,122 1,050
Indonesia 31 9 560
Japan 2,303 2,128 2,378
1 Korea 2,475 1,679 3,450
Malaysia 104 79 32
New Zealand 95 46 25
Pakistan 3
Philippines 81 24 1
Singapore 1,281 1,042 256
Sri Lanka 11
Taiwan 1,099 389 306
Thailand 80 22 70
Vietnam 13 3 9
Total: 12,329 11,225 10,447

Size and growth
Despite his firm's success in South Korea, though, Hsu is more bullish on China. “I would bet on China because it's an immense market,” Hsu says. “The size of the economy and the growth rate are in China's favour.”

Hsu accepts that the SARS pandemic has underscored vulnerabilities in China, such as the country's continued lack of transparency. But, with the world's gaze now focused on the country, those “bad habits” will be pressured to change, he says. One of his firm's investments, a Starbucks franchiser in Beijing and Tianjin, has suffered from the SARS outbreak, but the firm is still interested in consumer franchises because of the fast-growing market in China.

Then there is the manufacturing. “The US information technology industry, for the last 20 years, has moved all manufacturing off shore,” Hsu says. “China is the factory for the world. It has an infinite supply of labour.”

Hsu compares China's labour situation to that of India, except that China has done a better job of fighting wage inflation, he says. Hsu's investments in the country include Semiconductor Manufacturing International, a semiconductor factory, rechargeable battery manufacturer Ampex, and biotechnology company Sinogen International.

According to a survey titled “Show us the Money,” conducted by PricewaterhouseCoopers, China has overtaken South Korea as the most favored market by foreign investors. The survey polled 97 private equity and venture capital investors in six Asian regions. Respondents like China best as a land of opportunity, but said their biggest concerns about investing there were ensuring an exit strategy, transparency and reliability of information, and corporate governance.

Private equity giant Warburg Pincus is a China convert. The firm recently opened a Beijing office and has committed a total of $300m to the country. Warburg Pincus made its largest venture investment in China when it invested $42m for a stake in Beijing-based telecommunication equipment maker Harbour Network. Other Warburg Pincus Chinese portfolio companies include Nasdaq-listed telecommunications software company AsiaInfo Holdings, Hong Kong-traded billboard company MediaNation, and Singapore-listed ceramic tile maker Eagle Brand Holdings.

While China's exit market remains a concern, liquidity events aren't entirely foreign there. Hsu says his firm is looking to hold an initial public offering early next year for Semiconductor Manufacturing International Corp. Baring Private Equity Partners Asia has also exited two Chinese businesses this year resulting in internal rates of return of 35 per cent and 42 per cent, respectively. The firm netted a multiple of 2.2 times invested capital in its investment in Chinese wireless application provider Newpalm and three times invested capital in Netease, a Chinese Internet portal providing content, e-commerce, and community services.

HSBC has also done deals in China, and Raffini says he sees a bright future for the country. But he believes that enthusiasm for the region has driven many prices up to relatively high levels. For now, the buyout and other opportunities of South Korea are his focus.

Once SARS calms down – and hopefully the tensions on the 58th Parallel will follow suit – the East Asia investment opportunity will be clearer to all.

Asia
News

Foreign firms dominate Q1 China investment
Foreign and domestic venture capital firms invested $224.5m in companies operating in mainland China during the first quarter of 2003, mostly in the telecommunications, integrated circuit design and software outsourcing sectors, according to a survey released by Beijing-based venture capital consulting company Zero2ipo.com. Foreign companies accounted for the bulk – $187m – of the capital invested in the quarter.

The survey counted investments in 31 separate companies during the quarter. Deals included a $50m investment by Walden International and others in United Platform Technologies, a telecom equipment maker in Beijing, and a $40m investment by the Softbank Asia Infrastructure Fund in Shanda Internet Development Co, a gaming company located in Shanghai.

Also in the first quarter, domestic private equity firm Legend Capital, an arm of China's largest computer maker, Legend Group Holdings, led a $23m fundraising round for Photonic Bridges, a networking equipment company with offices in the U.S. and China. Several other foreign venture capital firms participated in the deal.

The most high-profile transaction during the period was the rescue of bankrupt undersea-cable operator Asia Global Crossing by China Netcom Corp, a unit of a Chinese state-owned telephone company. Private equity firms Newbridge Capital and Softbank Asia Infrastructure Fund also participated in the buyout.

Carlyle hires former GS chief
US private equity firm Carlyle Group has continued its recent spate of international appointments, hiring former Goldman Sachs regional chief John Il Kwun. Kwun joins the firm's Korean buyout team.

US–educated Kwun is the former head of Goldman Sachs North Asian M&A practice and adds to the team of eight professionals currently working out of Seoul. Kwun formerly worked for Michael Kim, managing director of Carlyle's Asia buyout team, during Kim's spell at the investment bank. Kim describes Korea as Carlyle's ‘priority country’ in the region. The firm is currently looking at two further investments in the country, to add to its current portfolio which includes KorAm Bank, the seventh largest bank in the country, and Seoul-based Mercury Corporation, one of the leading manufacturers and suppliers of telecom equipment.

Newbridge to pursue Shenzen deal despite setback
Newbridge Capital, the investment firm specialising in direct investments in Asia, has vowed to continue its efforts to acquire a 15 per cent interest in Shenzen, despite an announcement from the Chinese bank that talks had failed because of disagreements over price and management control.

Failure to seal an agreement prompted the management of the Chinese bank to disband a committee which was to have overseen the investment, Shenzhen Bank said in a statement.

According to Bloomberg, Newbridge said it expected the Shenzhen government to “respect its international commitments and honour its obligations.” The agreement has already received approval from the central bank, securities regulator and the State Council.

Failing to sell a stake would jeopardise attempts to improve management at the bank, which has the highest level of bad loans of any publicly-traded Chinese lender. Foreign companies are restricted to owning 25 per cent of Chinese lenders.

Newbridge has been in talks to buy some of the combined 18.2 per cent stake held by Shenzhen Investment Management, Shenzhen International Trust & Investment, Shenzhen Social Security Administration Bureau and Shenzhen City Construction Development Group.

AMP to sell UK unit
Kohlberg Kravis Roberts, the US private equity firm, is planning to launch an offer for the UK life insurance businesses soon to be spun out of Australian insurer AMP. KKR is reported to have held talks with fellow private equity firms Apax Partners and Warburg Pincus about a joint offer for the business, which could be valued at up to £1bn.

AMP, Australia's biggest life insurer, owns Pearl Assurance, NPI, London Life, Henderson Global Investors and Towry Law in the UK. At the beginning of May, AMP said it planned to spin off those businesses as a separate company, to be known as Henderson, and focus on money-management operations in Australia and New Zealand. The new group would have two million policy holders in the UK.

AMP chief executive Andrew Mohl confirmed that “AMP has a number of businesses which it is currently selling”. “We're in discussions with a number of parties, principally in the UK.” UBS Warburg is advising AMP on the sale.

KLM Capital launches China fund
California-based investment group KLM Capital has teamed up with Singapore-based business real estate firm Ascendas and Tsinghua Science Park Development Centre, the commercial arm of Beijing's Tsinghua University, to form a $50m venture fund to invest in companies with a focus on China.

Global Synertech Fund will invest both in foreign companies with plans to set up in China as well as Chinese enterprises that will expand into the global market. The three partners will jointly manage and make equity investments in both early and late-stage companies working in IT, materials, energy and environmental technologies.

Plexion Technologies secures $2m second round
The private equity arm of JP Morgan Chase & Co, JP Morgan Partners, has committed a further $2m in second round funding to Plexion Technologies, an Indian provider of computer aided design services for aerospace and auto companies.

The business, based in Bangalore, previously received $4m from JP Morgan Partners when it was founded two years ago by a group of aerospace experts. Plexion is actively hiring for its operations in Bangalore and overseas centres in the United States, United Kingdom and Germany. The company now employs about 135 people.