ASIAN VENTURE CAPITAL JOURNAL

PRIVATE EQUITY ASIA

M&A ASIA

Asia’s Private Equity News Source avcj.com June 05 2012 Volume 25 Number 21

FoCusFund oF thE wEEk

Flights of fancy?China provides the momentum behind emerging art and wine funds Page 7

SBI targets $80mNew fund will invest in fi nancial services Page 9

China GPs go globalPE fi rms spread their footprint overseas Page 10

dEal oF thE wEEk

Xinjun Liang, vice-chairman and CEO of Fosun Group

Page 11

Intel Capital backs Vietnamese internet company

Page 9

Congratulating the winners of this year’s AVCJ China awards

Page 3

Apax, Apollo, Bain, Blackstone, Carlyle, CIC, General Atlantic, GSR, Lone Star, Morgan Stanley, Navis, PEP, Sequoia, Tiger Global, Unison, Warburg Pincus

Page 4

Editor’s ViEwpoint

nEws

industry Q&a

singapore18 - 19 July 2012www.avcjsingapore.com

AVCJ Private Equity & Venture Forum 2012

usa10 July 2012avcjusa.com

AVCJ Private Equity & Venture Forum 2012

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Number 21 | Volume 25 | June 05 2012 | avcj.com 3

Editor’s ViEwpointallen.lee@incisivemedia.com

Congratulations to the winners of the 2012 AVCJ Private Equity & Venture Capital Awards China.

For a second year in a row, AVCJ has sought to recognize excellence in private equity and venture capital in China in its annual private equity and venture capital awards. Thanks to the help of a panel of judges formed by some of the industry’s most knowledgeable LPs, and votes from the Asian private equity industry, the winners were announced at the recently concluded 2012 AVCJ Private Equity & Venture Forum China in Beijing on May 30.

Leading the way is Hony Capital, which retained its title as ‘Firm of the Year.’ The Beijing-headquartered firm, led by John Zhao, also took home the ‘US Dollar Fundraising’ prize for its fifth US-dollar denominated fund, which closed in January at $2.4 billion. Hony’s awards marked a busy 12 months for the Chinese PE firm, which made a string of stand-out investments, including state-owned Qinhuangdao Yaohua Glass and Japan’s Tokai Kanko, and secured a $208 million exit from its holding in New China Life Insurance. As for the fundraising prize, with barely four months in the market, Hony was able to close its China-focused vehicle on more than $1 billion more than its predecessor, which closed in 2008.

KKR’s head of China, David Liu, was the winner of the ‘Private Equity Professional of the Year’ prize. Liu’s award paid tribute to KKR’s broad portfolio of transactions over the last year. These included water treatment company United Envirotech, luxury car dealership Rundong Auto, clothing retailer China Outfitters, property firm Sino Prosperity and healthcare specialist China Cord Blood. Liu has also been instrumental in building out an investment team recognized as one of the most diversified and stable in the country.

The ‘Private Equity Deal of the Year’ category was won by DST Advisors, Silver Lake, Temasek Holdings and Yunfeng Capital for their investment in Alibaba Group. The deal was to a large extent recognized as a one-off: a $1.6 billion

employee liquidity event, with a challenging structure, which allowed private capital to enter one of China’s most exciting companies.

Unlike the private equity category, the ‘Venture Capital Deal of the Year’ award went to a transaction that has been years in the making. Sequoia Capital has backed restaurant listings and reviews site Dianping.com since its early rounds and in April 2011, participated in a $100 million investment in the company alongside Lightspeed Venture Partners, Qiming Venture Partners and TrustBridge Partners.

Other awards went to Bo Feng of Ceyuan Ventures for ‘Venture Capital Professional of the Year’, Co-Win Capital’s RMB2.5 billion Nanhai Growth Fund V for ’Renminbi Fundraising of the Year’, and Affinity Equity Partners and Unitas Capital for their exit from Beijing Leader & Harvest Electric Technologies.

Lou Jiwei, CEO of China Investment Corporation, won the AVCJ Special Achievement Award for his and his organization’s contribution to the development of private equity and venture capital in China and the rest of the world.

Allen LeePublisherAsian Venture Capital Journal

And the winners are…

Managing Editor Tim Burroughs (852) 3411 4909

Senior Editor Brian McLeod (1) 604 215 1416

Staff Writers Susannah Birkwood (852) 3411 4908

Alvina Yuen (852) 3411 4907

Creative Director Dicky Tang Designers

Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow

Senior Research Manager Helen Lee

Research Manager Alfred Lam

Research Associates Tweety Lau,

Kaho Mak, Jason Chong

Circulation Manager Sally Yip

Circulation Administrator Prudence Lau

Senior Manager, Delegate Sales Anil Nathani

Senior Marketing Manager Stacey Cross

Director, Business Development Darryl Mag

Manager, Business Development Samuel Lau

Sales Coordinator Debbie Koo

Conference Managers Jonathon Cohen, Zachary Reff, Sarah Doyle

Conference Administrator Amelie Poon

Conference Coordinator Fiona Keung, Jovial Chung

Publisher & General Manager Allen Lee

Managing Director Jonathon Whiteley

Chairman Emeritus Dan Schwartz

The Publisher reserves all rights herein. Reproduction in whole or in part is permitted only with the written consent of

AVCJ Group Limited. ISSN 1817-1648 Copyright © 2012

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KKR’s David Liu (left) receives award from Lorna Chan of Shearman & Sterling

avcj.com | June 05 2012 | Volume 25 | Number 214

Global

bain to target $6b for global fundBain Capital has set a target of $6 billion for its new global buyout vehicle. The fund will seek contributions from US pension funds and endowments, and global institutional investors. Fundraising is expected to commence by the end of June, and Bain will provide a GP contribution of $600 million - or 10% of the total corpus targeted. The close could happen as early as the first quarter of 2013.

Sequoia Capital raising $1b for funds Sequoia Capital has reportedly hit the fundraising trail again, and plans to raise at least $1 billion for a series of funds, including a China-focused vehicle. It will also raise a fund to invest in conventional venture capital and a third that will concentrate on growth equity. SBI, FMO to launch $80m emerging Asia financial fund

auStralaSia

Hawkesbridge backs ColemansAustralian private equity firm Hawkesbridge has acquired a stake in Australian fencing infrastructure firm the Colemans Group. Hawkesbridge, which manages more than $200 million in funds for institutional investors, will assist with the corporatization of the group advice and expansion capital to enable greenfield development and strategic acquisitions to take place.

australia’s aSX may join bid for PEP’s linkAustralia’s bourse operator ASX may join the auction for Link Market services, the share registry owned by Pacific Equity Partners (PEP), in a deal that could be worth as much as $1.36 billion. If the transaction goes through, it would be Asia’s biggest private equity exit of the year so far.

Carlyle, apollo lose out on $2b brambles asset saleASX-listed Brambles announced that it canceled it plans to raise cash by selling Recall, its information management business. The

10-month process was called to a halt because of low offers from potential buyers, which included a number of private equity firms. The private equity firms that were interested were said to include Apollo Global Management, Thomas H. Lee Partners and Onex Corp.

blackstone, Morgan Stanley buy lloyds loans for $621mBlackstone and Morgan Stanley have bought 34% of a A$1.9 billion portfolio of distressed property loans for A$640 million ($621 million), from a unit of Lloyds Banking Group in Australia. The two private equity investors won over several high-profile rivals include Macquarie Group, a team consisting of Goldman Sachs, Brookfield and GIC, and hedge funds Pacific Alliance and Elliot Associates.

australia offers residency for VC investorsThe Australian government has announced plans to offer permanent residency to those who invest $5 million in domestic venture capital funds. It is expecting the most interest in the incentive to come from Asia – or more specifically, China. Investors of $5 million or more in local companies or government bonds will also benefit from the

new class of visa, the Significant Investor visa, which comes into effect on July.

GrEatEr CHina

orrick adds two partners to M&a and PE practiceOrrick, Herrington & Sutcliffe recently hired two partners to further strengthen the firm’s capital markets and M&A and private equity capabilities in China. Seung Chong joins Orrick from Proskauer Rose. Matthew Lewis, former head of Global Capital Markets, Legal for Morgan Stanley Asia, also joined the company.

GSr closes $133m later-stage fundChina-focused VC firm GSR Ventures has closed its GSR Opportunities IV fund on $133 million. The vehicle will give existing LPs in GSR’s first four funds the chance to invest in follow-on rounds with top-performing investee companies. Designed to enhance investor returns, the fund will concentrate on businesses that are deemed market leaders in multi-billion-dollar categories.

CiC loses two more executivesChina Investment Corp. (CIC) continues to see team volatility with the resignation of two more executives in recent weeks. James Ieong, a managing director with the fund who played a major role in setting up CIC’s joint investment vehicle with Russia Direct Investment Fund (RDIF), departed in May. Daniel Hu, a director who worked in the same department as Ieong, has also resigned.

nortH aSia

unison Capital seeks buyer for sushi chain Japanese private equity firm Unison Capital is searching for a buyer for its sushi restaurant chain Akindo Sushiro. If the transaction goes through, it could be worth as much as JPY70 billion ($893 million) and represent one of the largest private equity exits in the country in recent years. Unison has hired Mitsubishi UFJ Morgan to run the sale.

Ga sells Gavilon stake to Japan’s MarubeniGeneral Atlantic (GA) has sold its stake in

Warburg Pincus finalizes $125m Future Capital dealWarburg Pincus has reportedly agreed to buy a majority stake in India’s Future Capital Holdings (FCH), the financial services unit of the Future Group, for $100-125 million. The US private equity firm, which joined the race to acquire shares in the firm last month, will pay INR165-170 per share.

It will in turn snap up the 56% stake held by Kishore Biyani-controlled Future Group, which had been considering its exit options for the past two years. Warburg’s main competitor through the process appeared to be Hyderabad-based Deccan Chronicle Holdings, which previously tried to acquire the asset but failed due to a lack of funds.

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Number 21 | Volume 25 | June 05 2012 | avcj.com 5

US grain trader Gavilon to Japanese trading house Marubeni Corp, in a deal that values the company at an enterprise value of around $5.3 billion. Gavilon was also owned by hedge funds Ospraie Management and Soros Fund Management, which bought the trader together with GA for $2.8 billion in 2008. Back then it was the trading arm of US packaged foods company ConAgra Foods.

lone Star to pursue arbitration over KEb exitLone Star Funds plans to initiate arbitration proceedings against the South Korean government regarding its $3.5 billion exit of Korea Exchange Bank (KEB) to Hana Financial. The US private equity firm claims the government interfered with its rights as a major shareholder in the bank, violating obligations codified in an investment treaty between Belgium and South Korea.

SoutH aSia

tiger Global and SaiF boost Zovi with $10mVenture capital firms Tiger Global and SAIF Partners have invested $10 million as part of a Series B round of funding for Indian online private label retailer Zovi.com. The website, which sells clothes and accessories for men and women, previously raised $5.5 million in Series A funding from SAIF Partners and others including MakeMyTrip founder Deep Kalra last July.

insecticides india in talks with PE firmsInsecticides India is in talks with private equity investors to raise INR700 million ($12.6 million) to INR1 billion for its business expansion, which will dilute a part of its promoter’s equity. The Delhi-based pesticide plans to invest INR1.25 billion over the next two years, in a move to expand capacity and launch products.

Hero MotoCorp to merge with investment armHero MotoCorp, India’s largest two-wheeled vehicle manufacturer, approved a proposal to merge the investment arm of its parent company - Hero Investments - into the automaker. Private-equity funds Bain Capital and the Government of Singapore Investment Corp (GIC), who were originally shareholders of Hero Investments, will own 8.58% and 3.71% respectively of the merged

entity. Hero’s promoters decided to buy Honda’s 26% stake in the automaker in December 2010, ending a 26-year-old joint venture partnership.

navis puts nirula’s on the blockMalaysia-based private equity firm Navis Capital Partners is said to be in discussions with an individual about a sale of its Indian restaurant chain, Nirula’s Corner House, for INR1.5 billion ($27 million) The move comes just days after it acquired the remaining shares it did not already own in Nirula’s. “The two parties are seriously involved in talks for the sale,” said one source, while the other claimed that Navis’ move to wholly acquire the chain was designed to smooth the progress of the sale.

apax, Darby in talks to invest in KurlonBuyout out house Apax Partners and Darby Overseas Investments are said to be in advanced talks to acquire a minority stake in Indian mattress manufacturer Kurlon. Kurlon’s promoters are seeking to raise around INR2 billion ($35.6 million) in exchange for a 5-15% stake in the company. The new capital will be channeled

towards increasing manufacturing capacity and hiring more staff.

SoutHEaSt aSia

unitas mulls buyout of PE-backed infastech Pan-Asia buyout fund Unitas Capital has expressed interest in bidding for Singapore-based Infastech, which has been put on the block by CVC Capital Partners and Standard Chartered Private Equity (SCPE). Bank of America and Goldman Sachs have been mandated to run the sales process for the industrial fastener maker.

CVC-owned Formula one delays Singapore iPoCVC Capital Partners’ portfolio company Formula One Group has delayed its $3 billion Singapore IPO due to choppy market conditions. It is the fifth major listing to be pulled or delayed in Asia over the past week alone. Bernie Ecclestone stressed that the IPO had not been pulled and that it is still the intention to list Formula One this year.

CVCi boosts Wuttisak with $100mEmerging markets fund manager Citi Venture Capital International (CVCI) Private Equity and Thai-focused private equity firm Thai Strategic Capital have acquired around 30% of Wuttisak Clinic Inter Group for almost $100 million. The company provides skin whitening, anti-aging and acne removal treatments.

actis loses Southeast asia headGary Addison, head of Actis’ Singapore office, has reportedly resigned after four-and-a-half years with the firm. Formerly a partner with 3i Group in London, he moved to Singapore in 2009 to lead Actis’ Southeast Asia operations, replacing Alun Branigan. Addison has no plans to join another company.

Partners Group invests in thai wind energy projectPartners Group continues its foray into direct investment with an investment into Wind Energy, a Thai company that provides utility-scale wind farms. Other investors in the project include Chubu Electric Power Company, Ratchaburi Electric Generating and Demco.

KKr receives $225m from oregon investment CouncilKKR has won a $225 million commitment from the Oregon Investment Council for its second Asia buyout fund. The buyout firm is currently raising around $6 billion for its KKR Asian Fund II, which will invest across the region. The Oregon Public Employees Retirement Fund invested $200 million, and Oregon’s Common School Fund committed another $25 million. The plan was approved last Thursday by the Oregon Investment Council.

As of last month, KKR had reportedly attracted commitments of $2 billion for the fund, which is expected to announce a first close in June. Washington State Investment Board committed $400 million.

nEws

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Number 21 | Volume 25 | June 05 2012 | avcj.com 7

Cover Storysusannah.birkwood@incisivemedia.com

A JADE STOOL SAID TO DATE FROM THE Han Dynasty was sold for RMB220 million ($34.9 million) last year. It was later discovered to be a fake. It was claimed to be easy to tell that the supposedly 2,000-year-old chair was counterfeit, because people of the Han Dynasty (206BC-220AD) rarely used chairs and preferred to sit on the fl oor. The year before, a Qianlong Chinese porcelain vase sold at Bainbridge auction house in the UK for GBP43 million, thought to be a record for any Chinese artwork. The authenticity of that piece has not been established, but the buyer refused to pay for it, and speculators believe it was because the provenance of the asset was doubted.

“If we look at Chinese art - porcelains or Chinese traditional art, there are very signifi cant risks involved,” says Sam Harding, head of Asian Markets at the Fine Art Fund Group.

Indeed, as China starts to play an increasingly important role in the global art market, ensuring that the work they source is genuine is one of the greatest challenges fund managers of art vehicles have to face. Experienced advisors who conduct due diligence on these assets have struggled to keep pace with the unprecedented expansion in this category over the past three years – and forgers have been taking advantage. “There’s a lot more of a risk with the authenticity of the artwork in China because there have been very eff ective forgeries and a signifi cant number of works selling at auction that have later been shown to be forgeries, or around which doubt has arisen,” Harding continues. “If you’re going in with real knowledge, then it’s an interesting market, but it’s not one of enter into lightly.”

Funding boomThe Fine Art Fund Group is an investment house with around $100 million in assets under management and one of the few remaining survivors of the world’s fi rst wave of art funds, which emerged between 2000 and 2005. Following a second wave, between 2005 and 2008, when a number of vehicles were launched across India and South Korea, the art fund industry is once again experiencing a revival – and this time it’s being driven by China. While the nation is proving an attractive – if risky – hunting ground for investment targets, most of the

activity has in fact been on the fundraising side, with China’s art fund and investment trust market reaching just over $320 million last year. Of the 44 art funds estimated to have been in operation globally last year, 21 were set up in China, focusing on genres ranging from traditional early modern paintings to Chinese ceramics, and contemporary art.

“In the last few years, disappointment in the performance of fi nancial assets and the global economy has led clients to look for new alternatives. It’s probably no surprise that you’ve seen an interest in wine, gold and commodities as a long-term store of value and in some cases a potential long-term hedge against infl ation,”

says Randall Willette, founder and managing Director at Fine Art Wealth Management, an independent consultancy that advises fund managers on setting up and investing art vehicles. Willette’s observation is corroborated by a Deloitte report into art and fi nance, which found that 56% of private banks had experienced stronger demand for ‘hard’ tangible assets since 2008-09. This is thought to hold especially true for Asian – including Chinese - investors because of their relatively limited choice of fi nancial instruments, which partly explains the popularity among them of real estate investments. There has also been a steady increase in high-net-worth individuals in China – there were 535,000 in 2011, a 13.2% increase on the year before – which,

along with family offi ces, are prime candidates for investing in art. In fact, art investment accounts for 18% of Asia-Pacifi c HNW individuals’ so-called ‘investments of passion’, according to the latest Cap Gemini and Merrill Lynch Wealth Report.

Investor-collectors?This new breed of Chinese investors appears to be approaching art assets in a diff erent way to investors in the West, however. “Rather than keeping works in their collections for decades or generations, the new Asian collector is typically more willing to sell an item after owning it for a relatively short period of two to four years,” says Jeff Rabin, co-founder of Artvest, another art

advisory fi rm, and former Christie’s executive. Such short holding periods appear to indicate a more detached relationship with the asset class than that which has historically been observed in the West, where investing into art has long been the preserve of collectors, and emotional involvement has oft played a signifi cant role. Yet although Deloitte found that most private bank clients who invest in art are motivated by the potential investment returns (49%), portfolio diversifi cation (39%) and art as a hedge against infl ation (29%) rather than anything more esoteric, the emotional connotations of art are a continuing reason for the lack of institutional interest in related funds.

“It has been considered as a so-called

The Passion PortfolioThe increase in wealth creation in China has created a generation of HNW individuals intent on investing in art. But can the momentum behind this so-called emotional asset class be sustained?

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Global art fund market - Number of art investment funds coming to market

Source: Deloitte Luxembourg and ArtTactic

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20111st half

Total number of art funds coming to the market (excl. China) Total number of art funds coming to market in China

25

20

15

10

5

0

avcj.com | June 05 2012 | Volume 25 | Number 218

emotional asset class, so at this point we don’t necessarily see it as a space where institutional investors are going to come in in a serious way,” says Fine Art Wealth Management’s Willette, who who was formerly head of Art Banking for UBS Wealth Management in London. The problem for some is that it lacks the fundamentals that other financial asset classes have to enable them to predict investment performance. While a number of indices have been developed over the past decade for tracking art funds, numerous issues have been raised about the validity of the data involved, leaving the industry with no single commonly respected benchmark or index. Another issue deterring institutions such as pension funds from participating is that few funds have a long-term track record managing a vehicle greater than $100 million – in fact most firms manage $3 million to $50 million – which is far below most institutional standards. This has caused some to question whether the market can develop beyond its current form unless this starts to change.

A tailored fitHaving a barrier to entry to the institutional LP market isn’t the only capital raising challenge art funds have faced of late. Despite the fact that HNW individuals’ appetite for passion

investments increased in 2010, fundraising has been difficult for start-up vehicles thanks to an increasingly discerning LP base demanding greater transparency and track record from fund managers. The issue for art funds is that they often lack these things – as Willette’s says, “most lack the performance history and management track record and in some cases the investment discipline demanded of sophisticated investors in Europe and the US.” But a proportion of the funds that have raised capital have responded to their environment by moving towards the concept of privately managed client accounts, and there has been a marked increase in enquiries for such accounts over the past two years. Unlike in private equity, where the LPs commanding such concessions are typically big-ticket sovereign wealth funds, the clients granted a separate art account are ultra HNW individuals who pay $2-3 million. In exchange for their capital, LPs get direct ownership of the assets, separate management and a customized fee structure.

In spite of these concessions, Chinese art funds are thought to be raising an estimated $300 million between the second half of 2011 and the first half of 2012. But given that the market is currently unregulated, can the current growth rate continue? The case of India may serve as a cautionary tale for China. By 2007,

there were more funds coming out of India than any other country in the world, and $65-$75 million was under management by local vehicles. However, there was no regulation in place to properly supervise the funds, and when the market regulator SEBI decided to change this in 2008 – bringing art funds in line with Collective Investment Schemes – the vehicles began to suffer under the closer scrutiny. When the country’s largest art fund, Osian, collapsed the following year, the prosperity of the local industry came to a halt. “The poor investment performance of art funds in India is not a bad example to consider when examining what can happen when an over-heated art market in a developing economy outpaces the investment discipline and financial regulation required for sound risk management.,” says Willette.

The legal and regulatory frameworks surrounding the art market remain undeveloped in China. Introduction of regulation appears badly needed at this point, to avoid adversely affecting the industry at a later stage of its evolution. Closer scrutiny from the Chinese authorities could also serve to encourage more investors to the asset class, as the unregulated nature of the art market was a factor cited by 72% of the private banks surveyed by Deloitte as an obstacle to offering art investment services. Despite the current enthusiasm for investing in art in China, success in this area in the future is no foregone conclusion. “We’re already starting to hear signs of the economy slowing down a bit in China, so it’ll be interesting to see how that translates in terms of the investment market,” says Willette. “It appears that art funds have been moving at a pretty rapid pace in China and one would have to ask themselves how long can this be sustained”

Cover Storysusannah.birkwood@incisivemedia.com

China’s thirst for wineWine funds have also experienced increased demand in recent years. According to the latest

Cap Gemini and Merrill Lynch Wealth Report, Asia-Pacific high-net-worth individuals hold 18% of their investments of passion in the form of wine and other collectibles (such as rare coins), compared to 14% in 2009, and 15% globally.

The majority of funds in the market focus on trading the best vintages of Bordeaux wines – a practice which has occurred for centuries in some form or another. What is different about the current market dynamic is that whereas the appetite for wines used to come from Western Europe and the US, now it is China which is leading the demand.

As with art fund managers, the wine industry appears split as to whether the institutional market is ready to embrace the concept of investing in the asset class, however. “Family offices and private investors invest in our fund,” tells Miles Davis, a partner at UK-based Wine Asset Managers (WAM). “Pension funds will never invest in wine funds, because the whole market’s too small for them. It’s only for niche investors really.”

The experience of The Wine Investment Fund tells a different story however. The closed-end vehicle, which has a five-year investment period, counts several institutional

investors among its LPs, including family offices, fund-of-funds and an Asian pension fund. “I wouldn’t say pension funds will never look at wine funds but it is a difficult market to crack,” counters Chris Smith, investment manager at The Wine Investment Fund. As well as offering larger-ticket subscriptions to its Asian investors [more than its $20-25 million average], the Wine Investment Fund has also been urged by some Chinese investors to offer a shorter holding period than its five-year standard as they would prefer quicker returns and greater liquidity.

Ultimately the demands from Chinese LPs could start to be heeded more often. “Longer term, the demand that will be coming out of China will be so enormous that wine investing will be a good area to be in,” adds Davis.

Location of art and passion fund managers

Source: Fine Art Wealth Management

Asia-Paci�c Latin America Middle East

North America

Europe

Number 21 | Volume 25 | June 05 2012 | avcj.com 9

imagine initialing every page of a 1,200-page equity agreement. Sudheer Kuppam, managing director of Intel Capital APAC, did exactly that over the last few months, for the paperwork for a transaction with Vietnam Communication Corp (VC Corp), a leading internet company in Vietnam, which provides online content, e-commerce, social media and mobile services.

“While our average deal process takes four months, the legal process took another four months in VC Corp,” Kuppam tells AVCJ. “The entire regulatory framework in the country still needs to make a lot of progress and this was a very challenging experience as compared to other countries.”

Although the transaction took twice as long as usual, Kuppam points out that Southeast Asia is a market that should not be missed. While the region is home to a population of 600 million people, broadband penetration has only reached 100-125 million of them. Intel Capital is aiming to invest into the local technology ecosystem, which could enable another 200-300 million

people to use broadband in the next three to five years, and 40-50 million in Vietnam in particular.

VC Corp, which was also backed by IDG Venture Vietnam several years ago, has already employed 850 staff in Hanoi, Ho Chi Minh City and five other cities in Vietnam. Intel’s contribution will provide the company with working capital.

“IDG came to VC Corp when the company only had a few lines of businesses and subsequently added social networking and e-commerce,” says Kuppam. “The company has now established themselves in all of those divisions as they are generating revenue and have credibility in the market place. This time it is more of a growth stage investment.”

The company declined to disclose the size of the transaction, but revealed that a total sum of $17 million was invested across VC Corp and Singapore-based Reebonz, one of the largest

private sales e-commerce groups in Asia for luxury goods. Intel Capital tends to acquire up to 20% ownership in a single company.

Intel Capital started investing in Southeast Asia in 1999 and has invested $95 million in over a dozen technology companies in the region since then. Its investments have been

experiencing double-digit growth in the region and the manager continues to expect it to go up. Several portfolio companies have already gone public, including FPT, the largest IT and telecommunications (ICT) company in Vietnam.

“The single most attractive exit opportunity in Vietnam’s tech sector is still the IPO path because we don’t see any other exit routes as active,” Kuppam adds.

In 2011, 28% of Intel Capital’s investments were located in Asia, of which 13% were in India, Japan and Southeast Asia, 12% in China alone and 3% in Taiwan and Korea.

Japan’s sBi holdings and Netherlands Development Finance Company (FMO) have jointly rolled out a new fund that will invest in financial services across emerging Asia. The SBI-FMO Emerging Asian Financial Services Fund is targeting up to $80 million in capital and is seeking to make a first close on $60 million. It already has 85% - or $50 million - of the cash required for the first close.

The new fund will be managed by Singapore-based SBI Ven Capital, a mid-market regional VC player affiliated with the eponymous financial conglomerate. Also based in Singapore, the vehicle will invest mainly in growth-stage companies, although it is restricted from participating in equities or equity-linked instruments. It plans to undertake 3-4 transactions per year and will consider co-investing with other GPs.

“High expected economic growth,

ongoing structural reforms which may result in consolidation opportunities, socio-political intent to spur financial inclusion, as well as technological advances, all augur well for financial sector investments in emerging Asia,” SBI Ven Capital’s Brijesh Pande, who will be managing the fund, tells AVCJ.

The venture capital firm aims to capitalize on these trends by making attractive financial sector investments in the target countries of the fund – namely India, Sri Lanka, Bangladesh, Cambodia, Vietnam, Indonesia, the Philippines and Thailand.

“SBI Ven Capital will also leverage SBI Holdings’ and FMO’s extensive financial services platforms to add significant strategic value to the investee companies, which in turn is expected to positively impact the fund’s performance,” continues Pande.

In addition to Pande, the fund will be led by

managing director Masaki Takayanagi, who is responsible for SBI’s South East Asia operations. Before joining SBI, he was director for Investment Banking at Daiwa Securities SMBC in Tokyo and London, and executive director of Investment Banking at Nomura Securities in Australia. He has also worked at the strategy consulting firm AT Kearney, focusing on providing strategic advice for corporates, and KDD, Japan’s largest international telecoms carrier, in Tokyo and London. Pande, meanwhile, hails from ANZ, the fourth largest bank in Australia, where he was head of corporate sales. Under the leadership of Takayanagi, he now heads a team of four senior and two junior investment professionals who will be responsible for raising and deploying funds.

Teaming up with another institution to launch an investment vehicle is a strategy which SBI has already pursued on two prior occasions this year. In February, it partnered with Mahindra Satyam to roll out a $50 million fund to invest in ICT companies globally, and in January .it set up a vehicle with Edelweiss Financial Services to focus on listed companies in India.

dEal / Fund oF thE wEEkalvina.yuen@incisivemedia.com / susannah.birkwood@incisivemedia.com

Intel bets on Vietnam’s information highway

SBI, FMO launch $80m financial services fund

VC Corp: Getting Southeast Asia online

The fund will be domiciled in Singapore

avcj.com | June 05 2012 | Volume 25 | Number 2110

FoCusalvina.yuen@incisivemedia.com

the taBles have turned. while multinationals have been coming to China for decades to expand their global presence, Chinese companies are starting to take control of the game by acquiring international assets. Notably, Dalian Wanda Group just completed what could be the largest ever Chinese takeover of a US company last month, paying $2.6 billion for cinema chain AMC Entertainment.

There is no doubt that many Chinese corporations now have the deep pockets to go overseas. A more pertinent question for private equity players, however, is how to identify the best strategy to facilitate such ambitions.

Chinese outbound M&A activity has been sharply rising since 2004, with deal volume growing by 24.4% annually and deal value rising nearly 10-fold. Private equity firms have played a role in a few transactions so far. Chinese construction equipment manufacturer Zoomlion, a portfolio company of Hony Capital, acquired Italy’s Compagnia Italiana Forme Acciaio (CIFA) in 2008, with Mandarin Capital Partners and Goldman Sachs also participating. In January, CITIC Private Equity partnered with Sany Heavy Industry to buy Germany’s Putzmeister.

The sales of CIFA and Putzmeister indicate that Chinese companies and their private equity peers are no longer just buying up bankrupt or second-class companies. “Recent economic pressures have led to many European companies, mostly in manufacturing, actively approaching Chinese buyers,” says Derek Sulger, founding partner of Lunar Capital. “Most of the projects we’ve seen come through offer little value to us, as we think that acquisitions should be about brands or specific technologies.”

The China appealHowever, when dealing with less distressed acquisitions, Chinese companies lack relevant experience in bargaining. In certain cases, high valuations make getting strong returns very difficult. According to a person with knowledge of the Putzmeister transaction, its valuation could be as high as 16x P/E. It is questionable how much CITIC PE will be able to earn from this deal. Additionally, since the economic downturn hit

the US and Europe, there has only been a limited number of high growth companies left on the shelves. In order to outbid their European and US competitors - which have local expertise and networks - Chinese investors need to prove they have the edge by bringing more to the table. “Since capital is plentiful, it becomes crucial for PE funds to offer strategic added value to their targets in order to remain attractive and justify the required rates of returns,” says André Loesekrug-Pietri, chairman of A Capital, a private equity firm focused on cross-border transactions.

When Chinese companies talk about offering strategic value, they often refer to China’s growth story. In the past decade, some Chinese firms went abroad to localize technology

and resources with the aim of boosting their companies’ growth in China. Some might have also wanted to sell their products to overseas customers. However, this type of activity has started to loose its importance in recent years: the game now is more about Chinese consumption. For example, Fosun Group ties its outbound investments to the tastes of the rising middle- and upper class, which have a huge appetite for the luxury goods located in Europe. In 2010, when vacation resorts Club Méditerranée was trying to promote its global services in China, Fosun partnered with A Capital to help it develop its brand locally.

“When we invest, it is important to find a favorable valuation, say 8-10x P/E or 1-2x P/B. Then, one should look for those who want to partner with a Chinese investor and have a growth vision in this second-largest economy,”

Xinjun Liang, CEO of Fosun, tells AVCJ.

Step-by-stepHowever, as of last year, Fosun only held 9.71% in the resort. Liang and A Capital’s André Loesekrug-Pietri both agree that while Chinese investors are keener to manage local growth rather than that in Europe or the US, it is better for them to be less ambitious in the initial stages.

“With 27 countries, Europe is a complex environment, even for Europeans,” says Loesekrug-Pietri. “The best approach is to build their trust in foreign countries patiently by first getting minority stakes in the beginning, and co-invest with local investors. This minimizes their risks.”

While some companies are more acquisitive than others, the majority of Chinese corporations still focus on the domestic market. It’s not that they don’t have the cash to go abroad, but that they understand the need to have middle management to run overseas assets and in many cases they would prefer to have an investment partner. “Fundamentally, I don’t know of any Chinese company that is really capable of executing sizable international acquisitions,” Yichen Zhang, CEO of CITIC Capital, tells AVCJ. “The majority are not up to global standards, while you also have cultural and language barriers.”

To bridge the gap, CITIC Capital – one of China’s pioneers in executing cross-border transactions - has launched five cross-border private equity funds, including two for Japan, two for the US and one for global markets. Instead of backing Chinese companies wanting to go abroad, it has partnered with top-tier overseas GPs to buy controlling stakes in foreign companies with brands and technologies that appeal to the Chinese market. The GP can then exit through a trade sale while Chinese companies may secure a smoother passage for M&A.

“The more ideal model is that the PE player makes the acquisition first – by itself or or by teaming up with a foreign GP,” says CITIC Capital’s Zhang. “One can help clean the asset up and try to develop a China angle and then bring in a Chinese strategic investor in a step-by-step process.”

Chinese outbound strategies bet on home’s appealChinese companies have been more ambitious in seeking offshore acquisitions of late, but private equity players remind companies that the best tactic is to act according to ability

“It becomes crucial for PE funds to offer strategic added value to their targets in order to remain attractive” – André Loesekrug-Pietri

Number 21 | Volume 25 | June 05 2012 | avcj.com 11

Q: How has private equity become another engine driving the Fosun Group’s business?

A: Rewind to several years ago. We were still a multi-sector company that focused a lot on pharmaceuticals, real estate, steel and mining. The developments in these sectors helped substantially with the company’s profit growth. Later in 2009, we started to do investments, but our private equity business only happened in 2011, when we discovered an increasing number of investment opportunities.

In the old days, we only invested RMB1 billion every year, but the current environment requires far more capital from us, say RMB5 billion to RMB7 billion for each year. To accommodate such demand, we cannot solely rely on our existing balance sheet or leverage. As such, private equity is good way for us to explore more opportunities and capital from the outside world without adding too much pressure to the company’s financial conditions.

Q: Why did Fosun partner with Carlyle? How did the two companies get together?

A: We started our internationalization strategy in 2008 when we hired John Snow, former US Secretary of the Treasury, as our adviser. Since then, Snow has connected us to many international PE professionals include Daniel A. D’Aniello and David Rubenstein, chairman and CEO of Carlyle. We then agreed on launching a co-GP private equity fund. Fosun has been very open to share its local expertise and networks with the buyout firm. In some

cases, we also help them screen the growth prospects of Chinese investments. In return, the buyout firm tells us the suitable valuation we should pay for offshore investments.

We each invested $50 million into the fund and will consider launching other renminbi-denominated or US dollar funds together after our first vehicle matures and gets fully invested. At this stage, we still want to test the water by using our own capital without raising outside money.

Q: Who are the LPs in Fosun’s private equity funds?

A: We have famous international partners such as Carlyle and Prudential Financial as our investment partners. For LPs, they are mostly well-known Chinese enterprises. Star Capital Fund - a real estate private equity fund that raised RMB3.7 billion within half a year – has received commitments from Dalian Wanda Group and Suning Appliance. Entrepreneurs are important to our LP base

because they can bring value to our investments on top of the capital they leave with us.

We also want to expand our LP base to include Chinese institutional investors, state-owned enterprises and insurance companies. For overseas LPs, we may reach out to pension funds and sovereign wealth funds, for example,. for long-term capital.

Q: What about the GP contribution? A: While other GPs

contribute as little as 1% in their fund, Fosun commits 5-30%. Last year, we secured RMB13.3 billion of committed capital across six funds, of which RMB2.7 billion was drawn from Fosun’s balance sheet. We have already put all our available capital on the table. I certainly feel comfortable on how much we have committed, while our LPs are happy as well, largely due to the fact that the huge contribution from us means that they are putting their money with someone who is constantly sharing their risks.

Q: How does Fosun survive the competitiveness of the fundraising environment?

A: There are too many GPs in China now. The problem is not whether you can raise enough capital, but the right way to source long-term and good quality money. We partnered with Noah Holdings for fundraising our Star Capital Fund, given that was our first fund in the real estate market. The total amount, however, is relatively small. Noah helped us to raise one-fourth

of the corpus from high–net-worth individuals. However, for commitments of RMB1-2 billion, you still need to approach institutional investors.

While Hony Capital, CITIC PE and CDH Investments are the top private equity players in China, and provide impressive returns, emerging private equity funds like Fosun need to understand their own edges over others in order to survive. During fundraising, Fosun always emphasizes its value-adding abilities as we have already established operational experience and we don’t need to pay extra for it. LPs also want to partner with someone with good track record. Among the 171 private equity-backed IPOs in China last year, we listed eight of them. As of 31 December 2011, our pre-IPO projects that had been listed successfully achieved an average IRR of 58.8%. However, the use of Fosun’s brand is still weak in terms of fundraising, as we just started our private equity business last year.

Q: Are overseas GPs raising too much RMB capital?

A: Fund size always depends on the size of management team. For international players, including the likes of Carlyle, Blackstone and TPG, their global capability can support their size. However, they need to prove to their Chinese LPs that they are able to get the same kind of returns as they get in other parts of the world. For Fosun, we don’t want to blindly scale up our vehicles because I don’t think we can deploy large amounts so rapidly. We always need to act within our ability.

XiNJUN LiANg | industry Q&a alvina.yuen@incisivemedia.com

Stepping into private equityXinjun Liang, vice-chairman and CEO of Fosun Group, discusses the rationale for launching private equity funds, and the edge the company has over its competitors

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