Clark, Thread
The gist of the following is rather contrary to the tone on this thread so perhaps it is worth a closer look:
From FEER. (Far East Econmic Review)Reprinted for personal use only:
Buying Binge
It was a while in coming, but the Great Asian Fire Sale has begun. American fund managers are leading the push by foreign investors to buy Asian assets at bargain prices--and Asian companies worn down by the economic crisis are finally agreeing to sell. The result: American purchases of companies, property and partnership stakes are soaring. But, as a following story shows, for America the flip side of Asia's crisis is that the impact on exporters is becoming harder to ignore.
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By Bruce Gilley in San Francisco
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August 20, 1998
I n early July, American real-estate firm Colony Capital offered to buy a just-finished upscale residential development in the Philippines from its near-bankrupt owners. The offer was for about $30 million--but the owners rejected it. Three weeks later, however, their South Korean bankers told them to sell or be forced into receivership. The upshot: Colony got the property for 10%-15% less than it originally offered.
"It wasn't the first time in Asia when our earlier offer was not accepted," says John Brady, a principal of the Los Angeles-based company, which is one of the biggest private real-estate investors in America.
As Colony's experience indicates, stricken Asian companies have often been reluctant to sell out to foreign investors. But now, more than a year into Asia's economic crisis, companies in the region are finally starting to admit they need outside help. That sea change promises a wealth of new opportunities for cash-rich investors from the United States and elsewhere. With local sources of finance drying up, many Asian companies need money for restructuring--or just to survive.
The openings for investment are better now than even a few months ago, according to U.S.-based private investors who are poised to reap potentially huge benefits. Asia's cash crunch has forced sellers to accept deals they might recently have rejected. Combined with a revival of U.S. institutional interest in the region, this has led to a surge of new American funds aimed at Asia.
"This is the moment that many investors have been waiting for," says Simon Murray, a long-time Asia hand. In July, Murray raised $150 million for the first offering of his Asia-targeted Gems fund, with U.S.-based GE Capital leading a pool of international investors.
One obvious attraction to private investors now is lower prices. Many would-be investors stayed on the sidelines of Asia's mid-1990s boom because prices relative to earnings were simply too high. The region's economic crisis, and the slide in prices it has triggered, has now given them their chance.
"Prices are now 50% cheaper than they were a year ago and the deals just keep getting better," says Murray, who hopes to double the size of his fund by year's end. Adds Hsu Ta-lin, chairman of Asia operations for Hambrecht & Quist, a San Francisco-based investment bank: "They need the liquidity and we have the capital. It's a perfect match."
The near-disappearance of local capital has also given outside investors an entree to a whole new set of deals. "Access is the hardest part of finding deals in Asia," says Brady of Colony Capital. "Now we are seeing that situation improve." Eric Li, a partner in the San Francisco-based venture-capital firm Orchid Asia Holdings, recalls that before the crisis, the best deals went to the region's own, more aggressive financiers. "Companies in Asia were playing one investor off against another. We couldn't even get a seat at the table." That has all changed now, he says.
A rash of new private-investment funds provides evidence of U.S. moneyholders' heightened interest in Asia (see chart). They include several "vulture funds," so called for their hungry swoops on the distressed real estate that litters Asia's business landscape. Among them are an $800 million fund launched recently by Houston-based developer Hines, which intends to invest more than 40% in Asia. New York-based Greenwich Group International expects to raise $2 billion-2.5 billion from American investors for Asian property purchases by the end of 1999.
"The response from investors has been overwhelmingly positive," says Hsu of Hambrecht & Quist, which already has $700 million invested in Asia and expects by year-end to establish a new fund for the region worth at least $500 million. "From an investment perspective, the Asian crisis has become a great opportunity."
The inflow of funds has prompted many money managers to extend their reach into Asia. In July, supported by the World Bank, Hambrecht & Quist opened an office in Seoul, its 10th in Asia. In the same month, Los Angeles-based Financial Capital Corp. formed a $100 million venture with Tokyo-based Nomura Real Estate. And Colony Capital has recently opened two offices in Singapore: subsidiary Colony Asia Pacific and Oakwood Asia Pacific, a regional joint venture with U.S.-based real-estate manager Oakwood International.
Since most investments by private funds and investment managers aren't made public, details of individual deals are hard to come by. But Asia now looks like a buyer's market. Hambrecht & Quist recently acquired majority stakes in two Bangkok-listed concerns that were on the verge of bankruptcy: It spent about $12 million for control of kraft paper maker Thai Cane Paper and will eventually spend $15 million to acquire and upgrade electronics maker Semiconductor Ventures. Hsu says the company will also soon complete several agreements to invest in industrial companies in South Korea and the Philippines.
"Right now, it's like an after-Christmas sale as far as listed companies are concerned," Hsu says. "While many private companies are still in denial, public ones need to find investors quickly."
Li of Orchid Asia, which will close a new Asia fund worth $75 million this month, says he cannot find deals fast enough to spend all the money pouring in from investors. "Our partners want us to move faster. But it still takes time to find the right deals."
Orchid has invested $40 million in Asia since its founding in 1995. Earlier this year it put $7.5 million into a Chinese maker of baby-care products. It has also concluded several unspecified deals in Southeast Asia.
Colony Capital's Brady says the company has about 50 deals in the pipeline in Asia, including two in Japan and several in Southeast Asia. Hotel and resort projects in Indonesia and Thailand are also under consideration, he says. (The company already owns a 30% stake in Hong Kong-based luxury-hotel operator Amanresorts, bought in 1996.) The company's immediate commitment to the region, says Brady, is $200 million, with "extremely significant expansion" to follow.
The opportunities are seemingly limitless. Murray, the Gems fund investor, believes the break-up of conglomerates in South Korea will provide investment opportunities in areas like food distribution, manufacturing and telecoms. In Indonesia, palm-oil development and paper pulp are also promising--their costs are denominated in Indonesian rupiah but their export earnings are in dollars. And in Japan "we got some stuff that you wouldn't have even dreamed of a few years ago," he says of a recent trip to Tokyo, although he declines to elaborate.
The Gems fund will take minority stakes in mature companies for fixed terms of about four years. In some cases, it will help Asian companies that are themselves on the acquisition trail. "Often they are not in trouble, but want liquidity so they can buy the guy next door," says Murray.
While the revived investor interest in Asia is most obvious in the form of private funds, money is also arriving by other routes. Several U.S. companies have taken over Asian firms in their industry. Big acquisitions include the $650 million purchase of Thailand's Nakornthai Strip Steel Mill in March by a U.S. consortium including Steel Dynamics and Enron Corp. And American merchant banks such as Goldman Sachs and Morgan Stanley Dean Witter are snapping up property loans or the properties themselves, especially in Japan. Other sources of finance, such as real-estate fund Apollo, are providing money to U.S. companies to acquire distressed assets in Asia for their own use.
All told, foreign acquisitions in Asia were worth $12 billion in this year's first half, almost triple the figure for all of 1997 (see chart), according to London-based IFR Securities Data. American companies accounted for almost three-quarters of those purchases. The 10 largest U.S. acquisitions in Asia over the period were worth $3 billion, according to a separate study by London-based Jardine Fleming. European firms racked up 17 acquisitions worth $3.3 billion over the same period.
Alongside this modest flow of direct investment is a trickle of new mutual funds aimed at still-reeling retail investors. Bankers Trust and American International Group, for example, have recently launched new funds for Asia, citing depressed prices in the region and long-term growth prospects.
Investment managers don't expect Asia's economies to emerge from their crisis for at least two years. But Hambrecht's Hsu says Americans are investing now because they don't want to miss the next Asian growth cycle, as many did by pulling out of the region after China's 1989 Tiananmen Massacre.
At Gems, Murray says there's still an unshaken belief that the region's high education levels, strong work ethic and high savings rates will stimulate growth in future. "For those who think Asia is still on the map, these factors have not gone away."
Yet while the fundamentals look good, some strong caveats remain. First among them is the fact that U.S. investors, while keen on Asia again, have been chastened by the crisis. Any sign that a deal might not work is likely to cause investors to pull out. In May, for example, San Francisco-based investment firm Horizon Holdings withdrew a planned $250 million takeover of Korea's second-biggest securities house, Dongsuh Securities, because of uncertainties about the brokerage's ability to stay in business.
Another difficulty is sorting out the good deals from the bad. Access has improved, but information has not. The dearth of finance in Asia means there are more bad deals than ever waiting to snare the unwary fund manager. "I've seen an increase of 10-20 times in the number of deals across my desk," says Li of Orchid, "but a lot of them are crappy."
Murray also notes that outside investors have to be careful not to be seen as feeding off the region's misery. "You have to be seen as a financer--not a predator. Otherwise there will be a backlash," he says. Other managers express similar sentiments.
Malaysian Prime Minister Mahathir Mohamad has warned foreign investors against trying to take control of Asian economies during the crisis. But such fears appear to be less pronounced in the Asian business community. Hambrecht's rescue of Thailand's Semiconductor Ventures, for example, was hailed by local leaders. The takeover saved an estimated 1,200 jobs at the company by staving off local banks, the company's managers told the Bangkok-based newspaper The Nation in March.
With a sensitive approach, Hambrecht's Hsu believes, outside investors can make their role a positive one. Aside from the current crisis, the conditions that are making business more attractive for overseas investors in general are exactly the conditions needed to assure long-term, stable growth in Asia: greater receptiveness to foreign investment by governments and companies, and more-transparent legal and regulatory environments. "We hope this will make Asia a better place to do business," Hsu says.
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