Emerging Asia

Recently Released: Q1 2018 Industry Statistics

EMPEA recently released its Q1 2018 Industry Statistics. Themes highlighted in this quarter’s release include the record amount of capital deployed in the first quarter of 2018; recent divergence between Emerging Asia and other emerging markets; strong appetite for logistics, delivery and e-commerce assets; and fundraising for impact investing funds. As the exhibits in this release reveal, many of the fundraising and investment trends captured in the Industry Statistics mirror findings from EMPEA’s 2018 Global Limited Partners Survey, which was released in May.

Q1 2018 Private Capital Industry Statistics

Emerging Asia Q1 2018 Insight

After a strong 2017, GPs deployed US$14 billion across 407 deals in Emerging Asia in Q1 2018, a single-quarter record by deal count and disclosed capital invested. These highs are a result of gains in two market segments in particular. China venture capital deals, which almost doubled year-on-year, accounted for 46% of total deal count in Q1 2018. Similarly, 35% of the capital invested in Q1 2018 accrued to just one buyout: the US$12 billion take-private of Singapore-based logistic facilities provider Global Logistic Properties (GLP), with US$5.1 billion attributed to private capital fund managers in the acquiring consortium. Excluding GLP, capital deployed in Southeast Asia declined, year-on-year. While the region has held the first or second spot in EMPEA’s Global Limited Partners Survey market attractiveness rankings since 2013, sporadic mega-deals— rather than more incremental growth across the deal size spectrum—have led to annual gains in capital invested over this period. Fundraising for Southeast Asia-dedicated vehicles has actually declined. However, GPs may be accessing Southeast Asia through pan-Asia funds and platform investments, the most recent success story being Equis’s US$5 billion secondary sale of its pan-Asia renewable energy platform, which includes assets in Indonesia, Philippines and Thailand.

View all Q1 2018 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.

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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.