Emerging Asia

Recently Released: Year-End 2017 Industry Statistics

EMPEA’s just released Year-End 2017 Industry Statistics reveal year-on-year gains in funds raised and capital invested for private capital in emerging markets. Public market exits for private capital-backed EM companies also increased as fund managers took advantage of attractive conditions on public exchanges to list companies and conduct follow-on sales.

Emerging Asia led EM private capital fundraising, which reached its highest level since 2008. Fund managers raised US$61 billion for EM-focused funds in 2017, of which US$50 billion went to Emerging Asia private capital vehicles and US$9 billion to just one fund, KKR Asian Fund III. While fundraising outside of Emerging Asia is more variant from year to year, capital raised for Latin America and Sub-Saharan Africa may yet rebound in 2018 as large, experienced GPs return to the fundraising trail.

Year-End 2017 Industry Statistics | Read the full press release 

Emerging Asia Year-End 2017 Insight

Fundraising and capital invested in Emerging Asia reached record highs in 2017 at US$50 billion and US$38 billion, respectively. While these milestones point to increased investor interest and the maturation of Emerging Asia’s private capital landscape, this development only extends to certain segments of the industry. Funds with a final size or target of US$1 billion or more accounted for 62% of capital raised in 2017. Investors also flocked to Venture Capital (VC), with a record 86 VC funds closed in 2017, including four that raised US$500 million or more. While VC funds continued to increase in number and size, smaller funds have generally been less successful. Capital raised for funds with a final size or target under US$250 million has plateaued since 2010. Sector-focused funds bucked this trend, with 35 funds raising US$3.5 billion in 2017. Mirroring fundraising trends, VC investments and large deals across all strategies dominated the investment landscape; VC accounted for 69% of all deals in 2017 and investments over US$300 million represented the majority of capital invested. Specifically, outsized growth and buyout transactions drove investment Emerging Asia’s three most mature markets: China, India and South Korea.

View all Year-End 2017 Data Insights here.

Foreign Distressed Debt in India: What’s the Best Vehicle?

As India’s economy has grown, so has its stressed assets. Stressed assets, which comprise non-performing assets (NPAs), restructured loans, and written off assets, account for about 16.6% of total loans, which is the highest level out of all major economies. This problem is acute in assets related to industries such as infrastructure, steel, iron, and cement. With the Indian government and the Reserve Bank of India (RBI) mandating Indian banks to clean their balance sheets and makingefforts in bringing regulatory reforms in participation in the debt market and improving security enforcement process, foreign investors have patently made a bee-line to participate in the Indian distressed market through the use of investment vehicles. Today, there are 3 potential investment vehicles in India that foreign investors could choose from: (a) Alternative Investment Funds (AIFs), (b) Asset Reconstruction Companies (ARCs), and (c) Non-Banking Finance Companies (NBFCs). The decision on which vehicle to choose largely depends on 2 parameters: (a) the kind of instruments that foreign investors want exposure to, and (b) the level of control that foreign investors wish to exercise in identifying assets and their ultimate resolution.

Download the full article here.

Structuring Funds for Investment in India: Maximizing Tax Efficiency for U.S. Investors

The typical private equity model seeks to return capital and profits to investors with little to no entity or investment level taxation, leaving potential tax drag, if any, at the investor level. In practice and in line with a global tax paradigm where capital gains are generally sourced to the residency of the investor, this means that tax on the exit of a portfolio company is generally imposed exclusively by the jurisdiction in which the investor is resident and not by the jurisdiction in which the portfolio company is located. Where local tax rules do not follow this paradigm, income tax treaties may reduce or eliminate local capital gains taxes, or to provide a credit for local capital gains taxes against taxes imposed by the investor’s home jurisdiction.

In the case of India-focused investment platforms, fund sponsors often domicile their funds in Mauritius, where until recently they sought to avail themselves, among other potential benefits, of an exemption of Indian capital gains tax on disposition gains realized on a transfer of shares by a Mauritius resident fund under the India-Mauritius tax treaty. Effective as of April 1, 2017, subject to a transition period, the India-Mauritius tax treaty no longer provides for exemption from such Indian capital gains tax.

Download the full article here. 

A Snapshot of Renminbi Internationalization Trends Under One Belt One Road Initiative

In September 2013 China’s President Xi Jinping announced the “One Belt One Road Initiative” (OBOR). Under OBOR in 2014 the Silk Road Fund was established followed in 2015 by the Asian Infrastructure Investment Bank (AIIB). Both are intended to play significant roles in financing infrastructure projects in the sixty-eight countries along the revitalized silk roads. OBOR policy and investments are intended to contribute to increasing Chinese overseas investments and also to influence the selection of currency used in those transactions. In October 2016, the International Monetary Fund (IMF) officially added the renminbi to the basket of currencies that make up the Special Drawing Right (SDR). In May 2017, during the Belt and Road International Cooperation Forum held in Beijing, President Xi announced that in order to provide financial support to OBOR, China would inject additional RMB100 billion capital into Silk Road Fund and would encourage Chinese financial institutions to establish RMB denominated outbound investment funds with a total value of RMB 300 billion.

Download the full article here.

Impact Case Study: EM3 AgriServices

Aspada Investments, was chosen as one of three finalists in the EMPEA Institute’s 2017 Sustainability & Operational Excellence Challenge for its management of EM3 AgriServices, India’s first provider of farm services on a pay-per-use basis. Services on the platform are provided for the entire farm cultivation cycle including land development, land preparation, seeding, sowing, plating, crop care, harvesting and post-harvest field management.

Aspada helped EM3 build strategic relationships with original equipment manufacturers (OEMs), distributors, farmer cooperatives, financial institutions and government entities. As just one example, Aspada worked with EM3 to implement a Memorandum of Understanding (MoU) with the government of Rajasthan to provide farm mechanization services to 100,000 farmers across 28 of 33 total districts in the state. The state government is supporting the initiative by partially subsidizing the equipment procured by asset owners that are utilized on EM3’s platform.

Download the full case study here.

Impact Case Study: Ganesha EcoSphere Ltd. 

MCap Fund Managers, an India-focused multi-strategy PE investment advisory firm, was awarded the winner of the EMPEA Institute‘s 2016 Sustainability & Operational Excellence Challenge for its active management of Ganesha Ecosphere (GESL), a PET bottle waste recycling company in India that creates polyester fiber and yarn.

Recycled fiber has traditionally been sold as a cheaper alternative to virgin grade products; however, MCap believed that it should actually be sold at a premium given its value to the environment. By marketing the strengths of recycled fiber and positioning it as an environmentally friendly product to several global retailers focused on industries such as apparel, sports, adventures and bags, the private equity firm was able to broker several initial orders with improved realizations.

Download the full case study here. 

Private Equity in Vietnam 

One of the first deals by a global private equity firm in Vietnam was in 2006, when TPG and Intel Capital invested in FPT, a local IT firm. Now FPT has grown to the point where it is purchasing companies outside Vietnam. Another notable foreign transaction recently was the acquisition by a fund managed by Warburg Pincus of an interest in all of the retail assets of Vingroup, one of the largest private sector property developers. This was the largest initial private equity investment ever in Vietnam and has since been scaled up.

A constant challenge facing private equity firms of all sizes is that the investment opportunities in Vietnam tend to be smaller than their funds are targeting. This can sometimes force funds to be creative. It also reduces the number of deals.

Private equity investments have been made in both equitised State-owned enterprises (SOEs) and in private sector companies, with the latter predominating. Most investments into equitised companies occurred between 2005-2008 when many funds followed a pre-IPO investment strategy, following some successful investments in the auctions of Vinamilk shares in 2003 and 2005. Most pre-IPO opportunities at the time were equitised SOEs. But with the collapse of the stock market starting in mid-2007, the IPO market dried up. Since then, capital has increasingly flowed to emerging private companies such as Masan Group, VinGroup, MobileWorld, Golden Gate, etc.

Download the full article here.