Financing Leveraged Buyouts in Asia:

Opportunities and obstacles

Publication Date	July 2008
Publisher	IFR Market Intelligence
Product Type	Report
Pages	109
ISBN Number	not applicable
Product Code	IFR00027

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Summary

In just a few years the leveraged buyout market transformed itself from a relative backwater to one of the most dynamic areas of the world's capital markets. But the collapse of the US sub-prime market and the ensuing credit squeeze brought the boom in the US and Europe to an abrupt end, and with it, the widely anticipated Asian LBO boom was nipped in the bud.

These are trying times for the big LBO players. Private equity firms, still flush with cash, are running out of suitable assets to buy in more traditional markets and will need to act soon to maintain their investors' confidence. The banks, meanwhile, having spent a great deal of time and money rolling out leveraged finance teams in Asia, now need to decide whether to disband them or to start making them pay their way.

Financing Leveraged Buyouts in Asia: Opportunities and obstacles, an IFR intelligence report, assesses the damage inflicted by the credit squeeze on this exciting sector, weighs the factors that will determine its recovery and looks beyond liquidity issues at the long-term trends that will outline the market's future shape, explaining where money might be made and how.

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Content

EXECUTIVE SUMMARY
The attraction of Asia
Economic and financial conditions
Chapter 01 - OPPORTUNITIES AND OBSTACLES
- Liquidity - Asia is different
  - Differences in financing structures
- Bank involvement and the credit squeeze
- Viewpoint: Boey Yin Chong, Managing Director, Syndicated Finance, Corporate and Investment Banking, DBS Bank
- The challenge of spreading the risk
- Asian banks a more nuanced picture
  - Losses from direct exposure to US sub-prime mortgage-related instruments
  - Impact from links between local and global markets
  - Impact from economic links
- Beyond liquidity
  - Private equity
  - Institutional investors
  - Banks
- Viewpoint: Alan Hirakawa, Head of Leveraged Finance, Asia, Barclays Capital Corporate Leverage Finance
- Opportunities in Asia
  - Rapidly growing economies
  - Good quality companies
  - Underperforming companies
  - Conglomerates
  - Family-owned businesses
- Obstacles in Asia
  - Regulatory hurdles
  - Accounting standard issues
  - Currency constraints
  - Political and cultural resistance
  - Regional differences
- Viewpoint: Oliver Duff, Global Head of Leverage Finance, HSBC
- Institutional investment
- Private equity developments
- Viewpoint: John Hourican, Head of Leveraged Finance and High-yield, Europe and Asia, Royal Bank of Scotland
- Sovereign Wealth Funds a new force Global equity market correction the final rescue act
- Big picture, small details
Chapter 02 AUSTRALIA
- The position of Australia in the Asian market
  - The effect of the credit crunch
  - Regional banking activity
- Opportunities in Australia
- Viewpoint: UK banker, focused on sponsor coverage
- Viewpoint: Tim Whitehead, Executive Director, Co-head of Leveraged Finance, Australia and New Zealand, Goldman Sachs JB Were
- A booming economy
- Western (Anglo-Saxon) business culture
- Good accounting standard
- Favourable investment climate
- Good legal recourse
- Political stability
- Ideal sector dynamics
- Sophisticated capital markets
- Viewpoint: Farhan Faruqui, Managing Director, Head of Loans and Leveraged Finance, Asia Pacific, Citigroup
- Media ownership liberalisation
- Funds market
- Viewpoint: Oliver Duff, Global Head of Leverage Finance, HSBC
- Obstacles in Australia
- Local bank concerns
- Currency limit issues
- Foreign ownership issues
- Shareholder and political resistance
- CASE STUDY Qantas Initial challenges
- Finance issues
  - Additional risk
- Reasons for failure
- Public to private transactions
- Conclusion
Chapter 03 JAPAN
- The holy grail of the Asian LBO market
- Viewpoint: UK banker, focused on sponsor coverage
- Viewpoint: Farhan Faruqui, Managing Director, Head of Loans and Leveraged Finance, Asia Pacific, Citigroup
- Viewpoint: John Hourican, Head of Leveraged Finance and High-yield, Europe and Asia, Royal Bank of Scotland
- Viewpoint: Satoru Aoyama, Director, Fitch Ratings, Japan
- Opportunities in JapanEconomic advantage
  - Banking sector
  - Conglomerates and family-owned businesses
  - Current price advantage
  - Underperforming companies
- Obstacles in Japan
  - Conglomerate culture
  - Succession questions
  - Loan issues
  - Entry problems for foreign banks
- Viewpoint: Alan Hirakawa, Head of Leveraged Finance, Asia, Barclays Capital
- CASE STUDY Arysta LifeScience
  - Lessons from this success
  - Conservative business culture
  - Anti-foreign sentiment
Chapter 04 CHINA
- Viewpoint: John Hourican, Head of Leveraged Finance and High-yield, Europe and Asia, Royal Bank of Scotland
- Opportunities in China
  - Huge state-owned sector
  - Underperforming companies
  - Appetite for risk
  - Weak equity markets
  - Obstacles in China
  - Legal framework
- Viewpoint: UK banker, focused on sponsor coverage
- Viewpoint: Charles Wang, Partner in the law firm, Zhong Lun
- Poor accounting standards
- Lack of management expertise
- Financing limits
- Low foreign bank penetration
- Viewpoint: Anthony Wu, General Partner in Private Equity firm Hupomone Capital Partners
- Viewpoint: Alan Hirakawa, Head of Leveraged Finance, Asia, Barclays Capital
- Market prospects
  - State-owned enterprises
  - Private sector enterprises
- CASE STUDY Harbin Pharmaceuticals
  - Reasons for failure
- CASE STUDY GUM Holdings
  - Reasons for success
  - Further financings
- CASE STUDY Huawei-3Com
  - New deal
  - Future challenges
Chapter 05 INDIA
- Obstacles in India
  - Borrowing restrictions
  - Tax repatriation
- Successfully structuring financings
- CASE STUDY Gecis International
- CASE STUDY Flextronics Software Systems
  - Deal structure
  - Future financing prospects
- Opportunities in India
  - Economic growth
- Viewpoint: Oliver Duff, Global Head of Leverage Finance, HSBC
- Viewpoint: UK banker, focused on sponsor coverage M&A growth
- Corporate leveraged deals
- Other considerations
- Viewpoint: Alan Hirakawa, Head of Leveraged Finance, Asia, Barclays Capital
Chapter 06 OTHER NATIONAL MARKETS
- Viewpoint: UK banker, focused on sponsor coverage
  - Taiwan Local private equity prospects
  - Market selectivity
  - Domestic banking issues
- Viewpoint: UK banker, focused on sponsor coverage Singapore
- Viewpoint: Boey Yin Chong, Managing Director, Syndicated Finance, Corporate and Investment Banking, DBS Bank
- Market developments
- UTAC
  - Express Offshore Transport and Miclyn Offshore Malaysia
- Islamic financing structure South Korea
- CASE STUDY Fila
  - Private equity transactions
  - Future potential
Tables and Figures
- 0.1: US, European and Asia leveraged loans market size
- 1.1: How US sub-prime affects leveraged finance
- 1:2 Typical European LBO financing versus typical Asian LBO financing
- 1:31 Investor bases in US LBOs
- 1.32 Investor bases in European LBOs
- 1.33 Investor bases in Asian LBOs
- 1:4 Percentage of PE money earmarked for Asia versus current market size
- 1:5 2007 GDP growth rates for Asian economies
- 1:6 Sovereign ratings of leading Asian economies
- 1:7 List of major Sovereign Wealth Funds and size of their holdings
- 1:8 Falls in major Asian equity indices over past year
- 2:1 Australian LBO markets growth, 2005- 2007
- 2:2 Australian LBOs as a percentage of Asian LBOs
- 2:3 Success/failure rate of Australian P2P transactions
- 3:1 The take-off of the German market
- 3:2 The non-take-off of the Japanese market
- 3:3 Japan loan league table showing Japanese banks dominance
- 3:4 Japan loan league chart showing Japanese banks dominance
- 3:5 Japanese M&A loan league table showing Japanese banks dominance
- 3:6 Japanese M&A loan league chart showing Japanese banks dominance
- 3:7 Japanese leveraged loan league table showing Japanese banks dominance
- 3:8 Japanese leveraged loan league chart showing Japanese banks dominance
- 4:1 Basic structure of Chinese LBO financings
- 4:2 Detailed structure of LBO financings 4:3 Foreign bank penetration of Chinese market
- 5:1 Gecis International financing structure
- 5:2 Flextronics financing structure
- 5:3 Sigma financing structure
- 5:4 Indian M&A data
- 5:5 Indian cross border M&A data
Appendices
- Global LBO financing volumes 2005-2007
- Asian LBO financing volumes 2005-2007
- Australian financing volumes 2005-2007
- Japan financing volumes 2005-2007
- India financing volumes 2005-2007
- China financing volumes 2005-2007
- Taiwan financing volumes 2005-2007
- South Korea financing volumes 2005-2007
- Singapore financing volumes 2005-2007
- Malaysia financing volumes 2005-2007
- Indonesia financing volumes 2005-2007
- Top 10 Asian LBO financings
- Top 5 Australian LBO financings
- Top 5 Japan LBO financings
- Top 5 China LBO financings
- Top 5 India LBO financings