TEMASEK'S BROADENING HORIZONS

Given the vast amounts of capital they now have under management, it is clear that private equity firms are able to exert considerable influence over economies around the world. But perhaps no other investment firm can rival Temasek Holdings when it comes to bearing responsibility for the economic fate of a nation.

Temasek, which was launched in 1974 as the investment arm of the Singapore Government (it is 100 percent owned by the Ministry of Finance), has spent most of its life investing in fledgling Singaporean businesses and making them leaders in their field. More than one-third of the companies listed on the Singapore Stock Exchange have at one time or another been backed by Temasek, which has built up a portfolio worth a staggering US$90 billion.

But Temasek is now being asked to move with the times, and this means diversifying its operations away from a prosperous but small domestic market, which the government views as overly reliant on an electronics manufacturing sector facing increasingly strong competition from China.

“Singapore needs to build its income from overseas assets and Temasek seems to be at the sharp end of that”, Peter Douglas, a principal at hedge fund consultancy GFIA told the Far Eastern Economic Review. “Temasek should be looking for high-yielding opportunities and better returns, and most of those are outside Singapore”.

With a remit to reduce its exposure to Singapore from 75 percent of total assets to 33 percent over the next six years, Temasek has set about building its overseas portfolio with admirable vigour. In March 2004, the firm launched a new office in Mumbai and has rapidly become one of India's leading private equity investors by committing close to $1 billion to the country over the last 12 months. Perhaps its most prominent deal in the country saw it take a nine percent stake in ICICI Bank.

Elsewhere, Temasek has emerged as the preferred bidder to buy a stake of up to 4.7 percent in China Minsheng Bank, China's largest non-state owned lender, for around $110 million. It also appears to be in pole position to buy a 38.4 percent stake in Medco, Indonesia's largest listed oil group, having reportedly beaten off competition from PetroChina and the Indian Oil Corporation.

One of the challenges for Temasek is to ensure, in its eagerness to chalk up deals, it does not end up merely in possession of unwanted cast-offs from other, longer established investors in a given market. This is unlikely, according to Puneet Bhatia, managing director of Newbridge Capital, which has invested in some of the same companies as Temasek. “They are fairly savvy investment professionals”, he says.

AFFINITY POSTS $700M FUND CLOSE
Affinity Equity Partners, a pan- Asian private equity firm, has closed its second buyout fund, AC Fund II, on $700 million. The fundraising means Affinity now has more than $1.1 billion under management in total. The firm has offices in Hong Kong, Seoul, Singapore and Sydney.

Affinity was spun out of UBS Capital in a management buyout led by KY Tang and David Lai. UBS is the only investor in AC Fund II whose identity has been disclosed.

Affinity says it will continue to invest in established private equity markets such as Australia and Korea rather than emerging or growth economies. It says it will not invest in distressed or turnaround situations. Affinity's recent deals included the buyout of Singapore-based SDL Leasing, which was sold to GE Capital in less than a year for a three times return on capital invested.

PE GROUPS LAUNCH KOREAN SEMICONDUCTOR BUSINESS
A private equity consortium has launched MagnaChip Semiconductor, a Korean semiconductor company, in a transaction worth KRW954 billion ($828 million).

CVC Equity Partners, CVC Asia Pacific and Francisco Partners invested in the carve-out of MagnaChip Semiconductor from Hynix Semiconductor. MagnaChip comprises Hynix' former nonmemory semiconductor operations.

MagnaChip has 15,000 patents in its intellectual property portfolio covering areas such as display drivers, CMOS image sensors and applications solution processors. Major customers of the firm – which has 4,200 staff – include Haier, LG Electronics and NEC. Youm Huh, president and CEO of MagnaChip, said the firm would seek to grow awareness of its brand, build its R&D capabilities and improve and expand its customer relationships.

LIFT-OFF FOR FIRST LISTED AUSTRALIAN FUND OF FUNDS
ING Investment Management has launched a new listed private equity fund of funds known as ING Private Equity Access Limited (PEAL). PEAL will aim to raise $120 million from investors in Australia and New Zealand ahead of a listing on the Australian Stock Exchange on November 25.

It will become the first listed private equity fund of funds in Australia. The fund will initially allocate 100 percent of the capital to a defensive high yield portfolio of listed equities and cash, ahead of seeking to commit 90 percent of the capital to private equity over an 18-month period. The remaining ten percent will stay in securities and cash. According to PEAL managing director Jon Schahinger, the fund will seek a well-diversified portfolio of at least ten underlying managers.

NEWBRIDGE REVISES TAKEFUJI TERMS
US private equity firm Newbridge Capital has revised its terms in an effort to see off competition to acquire Takefuji, Japan's third-largest consumer lender. Newbridge, which is reported to be offering around $3.7 billion for a 33 percent stake in the firm, had originally said the voting rights of shares belonging to Takefuji founder Yasuo Takei must be transferred to a blind trust. This would have effectively given Newbridge operational control of the business.

But rival bidder Goldman Sachs was believed to have jostled Newbridge aside by making no such demand. Newbridge has now said that it will withdraw the blind trust scheme as long as it can acquire a 50.1 percent stake, which would still give it operational control. In another concession, a report in the Financial Times said Newbridge was also prepared to allow one of Takei's sons to remain in a senior position at the firm.

Takei, who holds a stake of around 60 percent in Takefuji, is being forced to reduce his stake to less than 25 percent following his arrest last year on charges of illegal phone tapping. He faces sentencing on November 17.

ACTIS SAMPLES CHINESE WINE
UK-based private equity firm Actis has invested $10 million in a Chinese company making wine from the wolfberry fruit. Actis has taken a 30 percent stake in China Wolfberry, which it hopes to float on a stock market within 18 months. The firm is expected to achieve sales of around $30 million to $40 million in 2004.

The wolfberry is used extensively in Chinese medicine and is believed to possess health-giving qualities. Actis says it is hoping to take advantage of changing consumer taste in China, as grain-based spirits lose their popularity in favour of fruit wines and low alcohol products. Chin Wolfberry's main brand, Ningxia Hong, is sold mainly to supermarkets in China, but is also exported to Japan, Korea and Canada.

LONE STAR SET FOR TOWERING RETURN
US private equity firm Lone Star has announced it will sell the Star Tower building in Seoul for what reports say could be a record price for a building in Asia. Asia Pulse reported that the 45-story building with a floor space of 212,190 metres could fetch as much as 1 trillion won ($872 million). Lone Star, which acquired Star Tower for 700 billion won in 2001 from Hyundai Industrial & Development Co, has appointed US commercial real estate services company Richard Ellis and Citibank as co-managers of the sale. It is estimated Lone Star's margin on the deal could be in excess of 40 percent.

JAPANESE ASSET MANAGER RECEIVES WARBURG, GIC BACKING
Global private equity firm Warburg Pincus and Singapore's GIC Special Investments have agreed to buy a stake in Nikko Asset Management, a Japanese provider of fixed income and real estate investment trusts and advisory services. The investment will give the two private equity firms 38 percent of the voting rights in Nikko through an investment vehicle they co-own with Nikko Principal Investments Japan, an investment subsidiary of Nikko Cordial Corporation. A press release did not state the value of the transaction, but noted that external investors will now own a third of Nikko Asset Management's equity. Nikko Asset Management is led by Tim McCarthy.