Transcript of "Frontier Markets Capital Private Equity Paper"
PRIVATE EQUITY FUNDSPUSH IN FRONTIER MARKETS
PRIVATE EQUITY FUNDSINVESTMENT INFRONTIER MARKETSmaking sense of the recent trend• “We are participating in what I believe is an absolutely seminal 50-year transition,”Jonathan Bond, partner at emerging markets investor Actis, said during the opening panelof the Global Private Equity Conference, hosted by International Finance Corp. and theEmerging Markets Private Equity Association in Washington, D.C. Private Equity investors arefacing a new world in which over-leveraged western companies are no more an option. Opportunitiesare now in challenging, unpredictable but highly profitable territories. Since the beginning of theyear we have seen KKR, Carlyle, and other leaders of the private equity, deploy and teams andcapital in Latin America, Asia and Africa. At Frontier Markets capital we believe there are real andsignificant investment opportunities in emerging markets, large and small.• KEmerging and frontier markets are • Furthermore, limited partners expect theseeing a lot of private equity investment proportion of their private equity allocationslately. The big names are moving in with KKR directed at emerging markets to increaseannouncing he will raise a Latin American fund in from 11-15% today to 16-20% in two years.”the coming years after Carlyle announced that itraised a $950Mln fund dedicated to the region. Asset allocation to Asia has risen from 5%Preqin has recently published a study on private to 23%. Note that India lone has seen itsequity investing in emerging markets and the share grow from $1.9bln to $2.1bln. Big dealsresults are not surprising. “73% of private equity are coming in India with Apax Partners andinvestors expect general partners to experience iGate Corp. that bought a majority stake inintense competition in China over the next year. Patni Computer Systems Ltd for $1.22 billion.Furthermore, limited partners expect the The second largest deal was a private equity-proportion of their private equity allocations assisted buyout of Honda Motor Co. Ltd’s 26%directed at emerging markets to increase from stake in the joint venture Hero Honda Motors Ltd11-15% today to 16-20% in two years.” by Hero Corporate Service Ltd. Bain Capital and Asset allocation to Asia has risen from 5% to Government of Singapore Investment Corporation23%. Note that India lone has seen its share paid $838.59 million for this transaction.grow from $1.9bln to $2.1bln.
• Another big deal was the purchase of a stake in The Latin America and Caribbean region, togetherHDFC Bank Ltd for $650 million by Carlyle Group. with Sub-Saharan Africa, raised 83.9 percent ofKeep in mind that a study last month by the those funds, showing their development potentialEmerging Markets Private Equity Association and following emerging Asia.” It’s interesting to seeColler Capital found that Brazil will be the most how China remains the main fund raiserattractive emerging market country for private despite its inability to develop really interestingequity investors in the next 12 months. projects, India, Indonesia, Malaysia are the main creators of projects worth investing in.Note: ”Among the roughly US$10.4 billion The Chinese market seems immature and isworth of PE funds attracted to emerging becoming a fund storage market. PE contributedmarkets all over the world, around US$9.3 to a mere 0.16 percent to the country’s GDP inbillion made its way to emerging Asia as its 2010, far from the close to 1% contribution infinal destination, accounting for 93.3 percent to the US and the almost 1.5% in the UK.the total EMPE funds flow over the past threemonths. For example, in Malaysia, private equity firms Carlyle and JC Flowers submittedBeating all its emerging Asian neighbors, China first-round bids for a 25 percent stakehas become the largest EMPE fund raiser. It in Malaysian lender RHB Capital , thereceived funds amounting to US$5.7 billion, 6.7 stake being sold by Abu Dhabi Commercialtimes more than the US$858 million attracted by Bank has a market value of $1.6 billion.its neighbor India.” In China, the Qualified Foreign Limited PartnersOther emerging countries in Central and Eastern (QFLP) scheme, favor applicants with connectionsEurope, Commonwealth of Independent States, to government-backed funds and homegrownLatin America, Middle East, North Africa and Chinese enterprises. Established in 2011, theSub-Saharan Africa shared the rest of the EMPE QFLP permits licensed non-Chinese private equityfunds with a value of US$1.1 billion. firms to convert foreign currency into Renminbi for onshore investment in China.
PRIVATE EQUITY FUNDSINVESTMENT INFRONTIER MARKETSmaking sense of the recent trend• Once approved, a firm may convert foreign • In Indonesia, Private equity firm Carlyle Groupcurrency, up to a quota permitted by its license, CYL.UL and Japanese brewer Suntory SUNTH.without approval by the State Administration UL are leading a race to buy a 30 percent stakeof Foreign Exchange (SAFE). Authorities have in Indonesian consumer firm GarudaFood worthexpressly indicated in the guidelines that ties over $200 million.to Chinese government funds and state-ownedenterprises are a plus… The second largest deal was a private equity- assisted buyout of Honda Motor Co. Ltd’sHemara Wikramanayake, the head of Macquarie 26% stake in the joint venture Hero HondaFunds Group, went further, predicting a “century- Motors Ltd by Hero Corporate Service Ltd.long trend of growth from emerging Bain Capital and Government of Singaporemarkets.” Investment Corporation paid $838.59 million for this transaction.This a thought shared by Frontier Markets Capital. In Indonesia, Reuters reported that Boy GaribaldiHong Kong is becoming the new IPO hub Thohir, the chief executive of the country secondfor Private Equity liquidity. The company was biggest coal miner Adaro Energy, has teamedplanning to only raise HK$200 million, Milan up with a group of investors TPG CapitalStation’s IPO was oversubscribed 2,180 times. to buy a 45 percent stake in BFI FinanceIts shares surged by 77 percent at one point on Indonesia worth about 164 million.its first day of trading on May 23, and closed witha gain of 65.8 percent. The purchase includes Jakarta-based private equity fund Northstar Equity PartnersIn June PE firm is following the trend with the TPG was part of a consortium that invested inIPO of Samsonite on the Hong Kong Exchange. an Indonesian coal contractor late last year. Intense competition for deals in hot markets likeStill in Asia, another sign of the market gaining China and India means global buyout shops likeactivity is South Korea’s CJ Group and Japanese TPG, CVC, the Carlyle Group and Blackstone areprivate-equity firm Unison Capital who are increasingly pushing into fast-growing marketsjointly bidding for Japanese food-additive maker like Indonesia, Malaysia, the Philippines andHayashibara. Vietnam, as they hunt for investments.
The move for BFI, which finances car, motorcycle Emerging markets food sector is extremelyand heavy equipment purchases, is the latest attractive right now. Investors and analystsinvestor deal to tap the fast-growing consumer salivated at the chance to get in on Latinmarket in Southeast Asia’s biggest economy. America’s booming fast-food market. According to Euromonitor, between 2010 and 2014 theIn Vietnam Private Equity investors with industry is expected to grow 19% in Argentina,a positive outlook for the coming year fell to 27% in Brazil, 26% in Chile and 31% in Colombia.53 % in the second quarter from 81% last And Arcos Dorados has leading market share inyear, Grant Thornton said in a report today. all of them.The survey conducted in the second quarter of The industry faces massive challengesthis year canvassed the opinions of over 800 in emerging markets, social unrest,decision makers based in Vietnam or those having strikes and revolutions, environmentala significant focus on Vietnam. liabilities, and regulation hurdles. The last in date is in Chile where regional environmentalVietnam’s economy may expand 6.5% this authorities rejected the construction of ayear, down from a 6.8% last year. Consumer $1.1 billion hydroelectric project linked toprices rose 17.51 percent in April from a year local private-equity fund Southern Cross.earlier, the fastest pace in 28 months. The donghas been devalued four times in the last eighteen However, private equity deal making has provedmonths, most recently in February. resilient, even if fundraising volumes are still well below the levels witnessed up to 2009.“Sentiment has decreased toward Vietnamas a preferred destination,” Ken Atkinson, The last example of resilience in the marketmanaging partner at Grant Thornton Vietnam, is in Africa where Kenya-base Insurancesaid in the study. “This is consistent with the Company of East Africa (ICEA) has teamed upuncertainty in Vietnam’s economy.” with Imara Securities, a Botswana investment group, and the Norwegian Investment Fund for Developing Countries (Norfund) to launch a new $100m private equity fund for SMEs in East and Central Africa.
PRIVATE EQUITY FUNDSINVESTMENT INFRONTIER MARKETSmaking sense of the recent trend• We stay in Africa. Teraco Data Environments, • We think Africa has provided that and willSouth Africa’s only provider of vendor neutral continue to provide that, in part, because we feelcolocation data centres, announces the that the supply and demand equation is still quitecompletion of a R158 million ‘Series C’ financing. favorable for investors in Africa. “ With sevenThe financing includes IFC, the Development funds and over $1.8 billion under management,Bank of Southern Africa, Treacle Private ECP is a leading private equity manager focusedEquity, Pentangle Group and Marlow Capital. exclusively on Africa.Still in South Africa Brait, the largest private Nigeria is still a difficult place to conductequity company said earnings fell 6 percent to business, a private equity firm, Helios174.8 million rand ($26 million) in the year ended Investment Partners, backed by George SorosMarch. Total assets under management rose and Madeleine Albright, is currently in a disputeby 1 billion rand to 14.6 billion rand when with the Nigerian government over mobile phonecompared to the year earlier. towers in the country. Helios Towers has filed a $250 million suitHurley Doddy, co-chief executive officer and against Multi-Links and Telkom in Lagos,founding partner of Emerging Capital Partners being the money accrued for the use of its(ECP), declared in a recent interview for africa. telecommunication masts for the past threecom; years.“I think both the experience of private equityfirms like ECP and also the experience with Multi-Links, owned by South Africa’s Telkom, toldforeign direct investment has shown that African Helios Towers that it is under no obligation to payreturns are comparable to returns anywhere rent or a termination fee years after the mastsin the world and we think that that is going to were built. The company is about three yearscontinue. Investors should look for growth into its 10-year contract.and for that growth to translate into good,risk-adjusted returns.
• In Mauritius- Aloe Private Equity, seeks to • TPG Capital’s sale of Turkish spiritsraise as much as 350 million euros ($501 company Mey Icki Sanayi ve Ticaret tomillion) to invest in Asian companies developing spirits giant Diageo for $2.11bn in Februaryenvironmental technologies. The company is the most recent deal to be completed in theexpects to close in the third quarter the first country. The EBRD and the European Investmentfunding round for its Aloe Environment Fund III Bank, and other multi-lateral institutions providewith capital commitments of about 100 million the majority of the funding.euros, according to Vivek Tandon, co-founderand general partner at Aloe. According to Business week, Cukurova Holding AS, the Turkish company seeking to retain control According to Bloomberg, it expects to investment of Turkcell Iletisim Hizmetleri AS., the country’sin eight to 10 companies in fields such as waste biggest mobile-phone operator, may sell assetsmanagement, recycling, water and energy to pay about 1.7 billion liras ($1.1 billion) in backefficiency that want to expand into Asia, Tandon taxes and fines.said in an interview yesterday. Cukurova is in talks with private equityIn Eastern Europe, some deal activity recently funds KKR & Co. and TPG Capital on thewith the Swedish private equity company Ratos sale of as much as half of its entertainment andAB buying the movie operations in Finland, news television channel Show TV, according to aEstonia, Latvia and Lithuania of the Finnish media person familiar with the matter. Istanbul-basedcompany Sanoma Group for EUR 116 million. Cukurova would aim to retain control of the channel’s management after any sale.In Turkey, crescent capital raised $100mlnon its final target of €200m. Mediterra CapitalManagement, raised €100m at the first close ofits own €250m fund. The last major fundraisingwas Actera Partners closing its buyout fund at€325m in December 2007. According to Preqin,there are six domestic buyout firms fundraisingin Turkey, including Mediterra and Crescent,seeking an aggregate €1.1bn.
• Today, Investments go both ways as China •Development Bank is in talks to to buya minority stake in San Francisco-based Frontier Markets Capital is a New Yorkprivate equity fund TPG Holdings, but said based company specialized in Research andthe deal requires government approval. Consulting on Frontier Markets. Frontier Markets Capital serves Private companies, Financial Advisers, Private Equity GeneralIn Italy it is Mandarin Capital Partners and Partners and Limited Partners, FundItalian textile group Miroglio that have entered managers, and broker dealers as theyin a 40 million deal, part of a broader $700mln envision to work in these risky but rewardinginvestment in Italy’s fashion sector. destinations..Vancl, the Chinese online store, which hasreceived backing from private equity and venturecapital firms including IDG, SAIF Partners,Ceyuan Ventures and Qiming Venture Partners,is planning the largest Chinese Internet listingin the United States this year, the $1bln IPO isexpected to hit the market in the fourth quarter. • Frontier Markets Capital and the Frontier Markets Capital Logo are registered trademarks of Frontier Markets Capital LLC. Frontier Markets Capital LLC - 70th Street, New York City, NY 10023. ph +646 326 3346