Carlyle bullish on Japan, China(2)

As The Carlyle Group raises its latest Asia buyout fund targeting $3.5 billion, it is optimistic about two of Asia Pacific’s key markets, Carlyle co-chief executive officer William Conway said on an earnings call Thursday. 

In particular, Japan will offer solid investment opportunities to private equity, according to the firm. Conway explained, “The Japanese people responded resiliently [to the Fukushima nuclear disaster] and are focused on jumpstarting their economy.”

Along those lines, Japanese Prime Minister Shinzo Abe recently announced a $116 trillion stimulus package, which industry sources believe will revive the economy and help open up private equity deals. 

“The rate of contraction in Japan seems to have moderated significantly since October. This fact, coupled with the Japanese central bank's newly accommodated monetary policies, has improved our outlook for Japan,” he continued. 

Co-chief executive of Carlyle David Rubenstein agreed, saying, “We've been hearing for a long time that the Japanese companies will finally begin to sell things when things don't work out. That has been a slow-moving process because it's been traditionally considered a loss of face to sell to a financial buyer…We think that is changing a bit, and our Japanese team is talking more about it changing.”

Carlyle recently exited its majority stake in Chimney Co on the Tokyo Stock Exchange on its third attempt during 2012 and in October invested $377 million in the buyout of cleaning supplies business Diversey Japan. 

Carlyle Japan Partners I, which is fully invested, posted a multiple of invested capital of 2.8x and net IRR of 37 percent, according to the firm. Its successor CJP II, which is $165.6 million in size and was launched in 2006, is currently tracking a return multiple of 1x and net IRR of 5 percent.

Rubenstein, who leads Carlyle’s fundraising efforts, explained it is not considering merging its Japan and Asia
funds.

“We've talked preliminarily to Japanese investors about a new fund, and we feel that there's a lot of interest in it. We don't know what the size will be, but probably by sometime this year we would probably be looking at something new in Japan,” he said.

“Our fourth Asia fund is in the market now, and it's doing quite well in terms of fundraising. It does not include Japan. It could co-invest in Japan, but it doesn't include Japan.”

The firm also noted “positive economic changes in China” during the call. Conway said, “After a lull in the first three quarters of 2012, China is now booming, with our internal data suggesting that China's growth is at an impressive rate similar to estimates from late 2010 and early 2011. We'll see if this continues.”

Carlyle made seven new China investments representing more than $700 million during the period January 2012 to January 2013, Private Equity International reported earlier. Recent Carlyle deals include acquisitions of a 49 percent stake in Mandarin Hotel Holdings and a 13.5 percent stake in Meinian Onehealth Healthcare.

The activity is in sharp contrast to the mainland’s plunging dealflow, which had an annual drop of about 40 percent to $10 billion in 2012, according to Mergermarket data.