AVCJ & Venture Forum 2011 AVCJ Private Equity & Venture Forum 2011

T aiwan Outlook China 11 May 2011 26 - 27 May 2011 www.avcjtaiwan.com www.avcjchina.com ASIAN JOURNAL

Asia’s Private Equity News Source avcj.com April 19 2011 Volume 24 Number 14

E ditor’s Viewpoint AVCJ gears up for Private Equity & Venture Capital PRIVATE EQUITY ASIA Awards China Page 3

N ews Axiom, Blackstone, CVC, DCM, FountainVest, HarbourVest, IL&FS, LGT, Paul Capital, Sequoia, Warburg Pincus M&A ASIA Page 4

f ocus How Equinox highlights M&A opportunities in China’s natural resources segment Page 9

New Horizons for D eal of the week Venture firms bank on Lashou to keep ahead of Co-Investors the PRC’s group-buying curve Page 11 The advantages and implications of GP/LP co-investments Page 6

D eal of the week Funds KKR sees sauce with Masan deal KKR in Vietnam’s biggest- ever deal with food maker GPs and their Fees Page 11 Squadron examines the price of Asian PE Page 10

AVCJ will skip an issue next week for the spring break. We wish a happy holiday to all our readers! AVCJ Private Equity & Venture Forum GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY

10TH ANNUAL avcjchina.com China 2011 26-27 May Park Hyatt, Beijing

China: World’s largest PE market by 2020?

Regulatory Limited Partners

China Banking Monte Brem Eric i. Chan Patricia M. Dinneen Jie Gong suyi Kim Hiro Mizuno sebastiaan C. van den Berg Judy Ye Jacky Yi Jing Peng Zhao Regulatory Chief Executive Managing Director Managing Director Executive Director senior Principal Partner Managing Director Director and Head Director Head of China Commission Officer Private Equity Group siGULER GUFF & CPP iNVEsTMENT COLLER CAPiTAL HARBOURVEsT EMALTERNATiVEs sMALLViLLE PARTNERs GROUP sTEPsTONE GROUP JP MORGAN AssET COMPANY LLC ALTERNATiVE BOARD PARTNERs (AsiA) AsiA CAPiTAL MANAGEMENT iNVEsTMENT LiMiTED Managing Partner PARTNERs YiMEi CAPiTAL

Keynotes Senior Industry Professionals

Weijian shan John Zhao Fredrik Åtting James H. Boettcher Henry Chen shirley Chen York Chen Grant Kelley Kai Fu Lee Group Chairman & CEO Founder & CEO senior Partner General Partner Partner, Co-Head Managing Director & Founding Managing Head of Asia Chairman & CEO PAG HONY CAPiTAL EQT PARTNERs FOCUs VENTUREs of Asia Head of Private Equity Partner APOLLO GLOBAL REAL iNNOVATiON WORKs senior VP & Executive PERMiRA ADVisERs CHiNA iNTERNATiONAL iD TECHVENTUREs LTD. EsTATE MANAGEMENT Director CAPiTAL CORPORATiON LTD LEGEND HOLDiNGs

Corporate Leader

Tom Doctoroff Andrew Liu André Loesekrug-Pietri Tony C. Luh James Mi Mark Qiu Maarten Ruijs Homer sun Frank Tang North Asia Area Director Managing Partner & Chairman & Managing Founding Managing Managing Director Chief Executive Officer Managing Partner Managing Director CEO Greater China CEO CEO, Asia Partner Partner LiGHTsPEED and Managing Director CVC CAPiTAL MORGAN sTANLEY FOUNTAiNVEsT JWT UNiTAs CAPiTAL A CAPiTAL GROUP DFJ DRAGONFUND VENTURE CHiNA RENAissANCE PARTNERs PRiVATE EQUiTY PARTNERs CHiNA PARTNERs CAPiTAL iNVEsTMENT AsiA iNC. (CRCi)

AsiA sERiEs sPONsOR CO-sPONsORs

LEGAL sPONsOR ExHiBiTORs iNVEsTMENT PROMOTiON PARTNER

TM

iNTERNATiONAL BUsiNEss NEWsPAPER sUPPORTiNG ORGANisATiONs

Registration enquiries: Sponsorship enquiries: Anil Nathani - T: +852 3411 4938 - E: [email protected] Darryl Mag - T: +852 3411 4919 - E: [email protected] LP (excluding FoFs) complimentary registration request: Speaker enquiries: Joyce Wong - T: +852 3411 4845 - E: [email protected] Doris Chan - T: +852 3411 4966 - E: [email protected]

AVCJ04-ad3 Editor’s Viewpoint [email protected] ASIAN VENTURE CAPITAL JOURNAL

Publisher & General Manager Allen Lee PRIVATE EQUITSeniorY Editor ASIA Announcing the AVCJ Brian McLeod (1) 604 215 1416 Associate Editors Maya Ando (852) 3411 4908 Anita Davis (852) 3411 4808

Private Equity & Venture Creative Director M&A ASIA Dicky Tang Designers Catherine Chau, Edith Leung, Capital Awards China Mansfield Hor, ManYee Mak, Tony Chow Research Manager Helen Lee Research Associates 2003 was probably professionals, and will also take Alfred Lam, Tweety Lau, Venus Yeung one of the gloomiest years in into consideration league tables Circulation Manager recent memory for people in provided by AVCJ and entries Sally Yip Asia. It was in that year that we from AVCJ readers and other Circulation Administrator Prudence Lau launched our first annual AVCJ Awards 2011 industry professionals. Private Equity & Venture Capital The judging panel will Senior Manager, Delegate Sales Anil Nathani Awards at the suggestion of China be selected by the editors of Walden’s Lip Bu Tan, who rightly AVCJ, and great care is taken in Marketing Manager Annie Ng proposed injecting some fun into the what was selecting a jury comprising the right balance of Marketing Communications Manager otherwise a gloomy industry. In November of specialist knowledge, experience and objectivity. Joann Yip that year, we launched the Awards at an exclusive Confidentiality is key to the judging process, Director, Business Development dinner during the AVCJ Forum in Hong Kong. with judges discussing the entries, but voting Darryl Mag Back then, we had three categories and a lot of independently and confidentially. Sales Coordinator fanfare – everybody, winners, losers, delegates, For VC Professional of the Year and PE Debbie Koo had a great time. Professional of the Year, finalists will be chosen Conference Managers We have never looked back since. by the panel of judges and posted on the avcj. Matthew Swainson, Doris Chan, Jonathon Cohen Over the years, the Awards successfully com website for public vote tallying, which will Conference Administrator Amelie Poon recognized excellence in private equity and be taken into account in addition to the judges’ Conference Coordinator venture capital in Asia. Of course, there were a opinions. In the case of any discrepancy or dispute, Fiona Keung, Jovial Chung few award recipients that have not stood the test the opinion of the judging panel prevails. Managing Director of time, but by and large, most of the winners Jonathon Whiteley have consistently upgraded industry standards Nominations Vice President, Administration and have lived up to expectations of these highly To make sure your choice gets included in this Harmony Heung sought after recognition. year’s AVCJ China Awards, please email your Chairman Emeritus Dan Schwartz Last year, we’ve expanded our Awards to nomination(s) to [email protected], include a regional one for the Indian private stating clearly category, name and reason for equity and venture capital industry. This year, your endorsement. Please include your contact we are pleased to announce the launch of our details, should we require further information. Incisive Media inaugural AVCJ Private Equity and Venture Capital Entries will close on May 11. 20th Floor, Awards China. Tower 2, Admiralty Centre 18 Harcourt Road, Like its predecessors, AVCJ’s China Awards Categories Admiralty, Hong Kong T. (852) 3411-4900 will recognize the growth and importance of Deal of the Year F. (852) 3411-4999 private equity and venture capital activity across • Venture Capital E. [email protected] URL. avcj.com China. The Awards seek to acknowledge the • Private Equity contributions of domestic and foreign firms that Beijing Representative Office Room 1805, Building 10, are raising the bar for the industry, as well as the Professional of the Year Jianwai SOHO, 39 East 3rd-Ring Road, professionals that continue to drive private equity • Venture Capital Chaoyang District, Beijing 100 022, China and venture capital forward. • Private Equity T. (86) 10-5869-6205 F. (86) 10-5869-7461 For this year’s AVCJ China Awards, there are E. [email protected] nine different categories (see chart). The awards Firm of the Year are open to venture capital and private equity The Publisher reserves all rights herein. Reproduction in whole or professionals, and firms investing, fundraising and Fundraising of the Year in part is permitted only with the written consent of AVCJ Group Limited. operating in China. • USD-denominated ISSN 1817-1648 Copyright © 2011 • RMB-denominated Judging Except for VC and PE Professional of the Year, Exit of the Year awards will be independently judged by a panel of private equity and venture capital industry AVCJ Achievement Award

Number 14 | Volume 24 | April 19 2011 | avcj.com 3 News

Asia Pacific government and the former head of renewable Blackstone RMB fund energy at Hong Kong utility company CLP approved for QFLP, reports Holdings. NewQuest acquires first close DST reportedly to open in BoaML assets The Blackstone Group’s maiden RMB, growth A newly launched fund managed by NewQuest equity-focused fund, the Shanghai Blackstone Hong Kong Capital Partners, backed by a consortium Equity Investment Partnership, has reportedly DST Advisors, the VC investor headed by Yuri consisting of Paul Capital, HarbourVest Partners, been approved for the Qualified Foreign Limited Milner, is said to be in the process of setting up LGT Capital Partners and Axiom Asia, has Partner (QFLP) program by the Shanghai shop in Hong Kong, Reuters reported. DST has acquired “substantially all” of authorities, allowing Blackstone to now convert invested in major digital companies Facebook Merrill Lynch’s (BoaML) non-real estate private foreign currency into renminbi with a custodian and Zygna, and last month participated in a equity portfolio in Asia. The portfolio specifically bank to make investments without applying for Series C investment round into China’s 360Buy. consists of more than 20 growth-equity and SAFE approval. According to Reuters, DST Advisors will open buyout assets primarily in Chinese and Indian the office at International Finance Centre 2 in companies. June. FountainVest, Spring BNY Mellon appoints new Capital buy into jewelry Asia Pacific Chairman BNY Mellon, the global asset manager and distributor investment services provider – which includes China-focused PE firms FountainVest Partners private equity and hedge fund investments – has and Spring Capital Asia have bought a 28.27% appointed Stephen Lackey as Chairman of its stake in China-based Enzo Jewelry for $41.38 Asia Pacific operations, based in Hong Kong. He million, coming as Enzo’s owner, LJ International, replaces Christopher Sturdy, who held the role considers spinning Enzo off via a future IPO. The since early 2008 and departs to take on a position capital buys the firms newly issued Enzo shares at the firm’s global client management group in as well as $9.98 million worth of existing shares New York. Blackstone additionally recorded a first close from LJ International, a listed global jewelry on the vehicle, confirming that the fund has marketing and distribution firm. Renaissance Capital set a target size of RMB5 billion ($765 million). appoints Trainor Asia It has received commitments from Chinese CVC partially exits government entities, state-owned enterprises Chairman and large domestic corporations. The total Hung Hing Emerging markets-focused Renaissance Capital amount raised has not been disclosed. CVC, via investment holding company Asia has named Sheldon Trainor as Chairman of its Packaging Company, has reportedly sold a Asian operations, based in Hong Kong. He is 29.9% stake in Hong Kong-listed Hung Hing charged with bolstering the investment bank’s Former D.E.Shaw attorney Printing Group to Rengo Co., a paper and strategy in the region via a focus on the natural joins Ropes & Gray packaging materials manufacturer listed on the resources sector. He most recently joins from Tokyo Stock Exchange, for HK$1.43 billion. Asia PacBridge Capital Partners, which he founded in Marcia Ellis has joined legal firm Ropes & Gray Packaging Company continues to hold a 7.6% 2009, and previously headed Merrill Lynch Asia’s as a Partner based in Hong Kong. Prior to the stake in Hung Hing. business. For 11 years prior, appointment, she worked with D. E. Shaw, he was at Morgan Stanley. where she assisted the hedge fund giant with COFCO launches PE making, restructuring and exiting investments throughout Asia. She has previously worked at fund in China Greater China Morrison & Foerster, where she advised clients on Food importer and exporter COFCO has debt financing, private equity transactions and formed its COFCO Agricultural Industry Fund Prudential, Fosun ready to complex mergers and acquisitions. Management Co. with an initial corpus of up to invest with new vehicle $305 million. The fund will be managed by four Nature Elements Capital shareholders: COFCO Trust Co., France’s Louis Prudential Financial and China’s Fosun Group Dreyfus, Japanese firm Ant Capital Partners and have launched the $600 million PRC-focused PE raises energy fund China Jianyin Investment. fund - the Pramerica-Fosun China Opportunity Nature Elements Capital, a Cleantech-focused PE Fund - first announced in January, with the two firm in Beijing, reportedly plans to raise capital Digital travel portal gets parties officially signing a JV agreement enabling up to RMB250 million ($38.2 million) for a fund the vehicle to begin investing. Its investments that will focus on clean energy projects across $50m from Sequoia, DCM will target industries and asset classes that are Asia. The fund is said to be receiving support Tuniu.com, a China-based digital travel service, both public and private companies based within from the Chinese government. Nature Elements has raised $50 million in a Series C venture capital and outside China, the parties announced. was founded in 2009 by the Chongqing city financing round from firms including Sequoia

4 avcj.com | April 19 2011 | Volume 24 | Number 14 News

Capital, DCM and Highland Capital, as well as $30m Mongolian PE fund company of Japanese private equity firm Japanese e-commerce major Rakuten Group. Advantage Partners. A number of angel investors Founded in October 2006, the company received makes debut also participated in this round of financing. its first capital injection two years ago from Gobi Silk Road Management, a Mongolia- and Central Partners, and has since leveraged its position via Asia-focused investment firm, has raised $30 new developments. million for its debut Mongolia Human Capital Korea Fund, surpassing Silk Road’s $25 million original Harbin CEO makes target. Family offices and HNIs in Asia, the Middle SBI Holdings launch privatization bid East, Kazakhstan and Russia contributed the Korean government-backed Tianfu Yang, CEO of Harbin Electric, a capital. The fund will target financial services, manufacturer of electric motors, has reportedly media, IT, healthcare, education and professional PE firm made a bid to privatize the company. This comes services businesses – a deviation from the The South Korean PE entity of Japanese financial months after Yang, partnered with Baring Private majority of investors who target the region’s rich group SBI Holdings has been appointed as one Equity Asia, made a joint $752 million bid. That natural resources. “We are committed to bringing of the fund managers of a new KRW10 billion process ended in November after questions of capital to early-stage, dynamically growing ($92 million) Japan/Korea fund, to be operated in Baring’s financial obligation to the deal came to Mongolian companies and, at the same time, conjunction with the South Korea government- light. providing international investors with access to owned Korea Finance Corporation (KFC). It will high-growth sectors in Mongolia beyond mining focus on parts and materials targets, and the and resources,” Managing Partner Alisher Ali said. Korean government will also be among the India fund’s LPs. D.E. Shaw invests in Southeast Asia media PIPE D.E. Shaw is reportedly nearing a 14.16 % stake Malaysian gambling acquisition in listed media channel operator New Delhi Television Ltd. for INR70 crore ($158.4 operator may accept bids million). While the assets manager declined to Malaysian entrepreneur Vincent Tan is reportedly comment, local media indicated that the firm will considering selling a 49% stake in the unlisted buy the stake from Merrill Lynch Capital Markets gaming unit of Berjaya Sports Toto Bhd (B Toto), and Nomura Capital, which reportedly owns 7.9% linked to the gambling industry. This asset is said and 6.2% stakes in the asset, respectively. to have a full value of approximately $1 billion. Providence Equity Partner and The Carlyle Group, IL&FS fully exits warehouse will add an undisclosed additional stake to take as well as , have reportedly voiced their collective holdings to control 10% of the interest in the sale, though none confirmed the operator to Warburg Pincus privately held company. Financial details were news. The Leverage India Fund (LIF), a managed by not disclosed. IL&FS, has exited its five-year asset Continental Singapore VC firms support Warehousing Corporation to Warburg Pincus Macquarie Goodman Japan for $100 million. IL&FS has fully divested from JustCommodity Continental Warehousing, with the aggregated abandons J-REP plan Singaporean commodity trading software firm sale generating an IRR of 27.8% on its initial Macquarie Goodman Japan, a JV fund held by JustCommodity Software Solutions received INR343 million ($7.6 million) investment, an Macquarie Bank and the Goodman Group, the an S$5.6 million ($4.5 million) investment IL&FS source told AVCJ. IL&FS made its initial logistic and property investor partially owned from a consortium led by Extream Ventures, commitment in April 2006 and partially exited its by China Investment Corporation, has scrapped a VC firm also based in Singapore focused on stake in 2009. plans to take the remaining shares of J-REP that it early-stage investments. Other investors in the doesn’t own. MGJ, which already holds a 51.75% financing round include venture firms OWW stake in J-REP, initially made a tender offering bid Capital Partners and Infocomm Investments, Japan at a valuation of JPY2.1 billion ($25 million). the latter which is the equity investment arm of Singapore’s Infocomm Development Authority. Cyberagent, Globis invest PE supports cloud in web start-up computing firm Correction: Last week, AVCJ published start-up Kayac Inc. has attracted NTT Investment Partners, the investment arm of a piece (KKR’s Yageo offer reflects Taiwan’s strength) investments from three firms – online advertising Japanese teleco NTT Group, will invest JPY113 reporting that KKR had completed an investment agency and venture capital fund operator million ($1.35 million) into Midokura, a cloud- deal with Yageo, when, in fact, the firm had CyberAgent, venture capital firm Globis Capital specialized software company. Also in the deal announced a tender offer that still requires Partners, and online clothing store operator are listed data centre Bit-isle and 1st Holding, shareholder and regulatory approval before it can Start Today. The group, all existing investors, a listed software marker that is also a portfolio be completed.

Number 14 | Volume 24 | April 19 2011 | avcj.com 5 Cover Story [email protected] Co-investments: Are GPs and LPs on the same page? Private equity funds investing together with their limited partners have been on the rise recently with no signs of slowing down but what are the economics and the implications for the relationship?

Co-investments, specifically the up the full allocation of some larger deals, due is that an LP granted co-investment rights and deals where LPs join in on a specific investment to lack of capital or diversification constraints. actually admitted into the deal process then with the GPs whose funds they invest in, are So they tend to share these deals with their becomes “the weakest link.” purportedly one area that benefited from the LPs.” Yet GPs’ responses to co-investment are, at Partly to avoid this risk, when a co-investment 2008 crisis and the subsequent shift in the GP/ best, variable. “In general, they are open to offer happens, it is normally not done through the LP balance of power. In the West at least, the co-investments to their major LPs, provided that broader limited partnership agreement at all. post-crisis dearth of leverage led to LPs stepping these LPs could response fast when a deal is Rather, an ad hoc fund vehicle is incorporated up as capital providers for deals, but on their offered to them,” Lai avers. specifically for the co-investment deal.This makes terms, as co-investors. And Asia Pacific might Andrew Liu, Managing Partner and CEO at it easier to manage the carry calculations and seem a suitable venue for LPs seeking to use Unitas Capital, says that GPs tend to be “positive” other economics of the deal: more importantly, their GPs’ expertise to gain exposure to a less well towards granting co-investment rights, but perhaps, from the GP’s perspective, it makes it covered region. Yet feedback indicates that co- this is not a universally held view. One leading easier to deal with issues of precedence among investments are by no means as prevalent, and co-investor LP, perhaps influenced by personal LPs. In each deal where co-investment crops LPs by no means as effective in sourcing them, as experience, reports that, “if GPs need additional up, GPs will generally want to put their strategic is commonly believed – for very good reasons. capital or LP bring some value (e.g. Industry or investors first as well as any LP with a significant market knowledge, or network), GPs are willing angle to contribute, such as a local LP who may Easy to come by? to provide. Overall, GPs seem to welcome have been crucial to sourcing the deal. Blanket LPs have a straightforward case for seeking capable LP co-investors.” Other figures in the overall commitments to co-investment options co-investments, where they can get them. Doug field, however, feel that co-investment rights hence lend to be shunned. As fund professionals Coulter, Head of Private Equity, Asia Pacific, with are increasingly harder to come by for LPs, attest, there is no one standard approach, and LGT Capital Partners, sees these from his firm’s especially in Asia, where quality funds are highly structures tend to be dictated deal by deal. point of view as, “a way to increase our exposure sought after, and LPs have less negotiating The GPs, meanwhile, might reasonably reflect that it is better to partner with a major direct investment entity than to bid against them on “Co-investment rights are increasingly harder to the same deal – especially when most co- investments concern large-scale opportunities come by for LPs, especially in Asia, where quality that would require a consortium bid anyway. funds are highly sought after, and LPs have less Also, LPs may make better co-investment partners than GPs, for purely competitive reasons. negotiating leverage.” Lai sees this as a better option for many GPs “as compared to sharing the deals with other private equity funds, which will claim these deals as their ‘track records,’ especially if they become to GPs we like, and give our investors access to leverage. Although co-investment rights are very successful.” And, as he points out, “Certain LPs interesting investment opportunities at lower important to some LPs, “sponsors with any kind (especially industrial families and corporations) fees and with lower risk as compared to doing of leverage resisted with all their effort, in a polite may bring strategic value to the co-investments.” direct deals.” This tends to support the contention way,” as a noted fund professional remarks. Diligence is another important motivator for of another fund formation professional that LPs who would like to take a major share of the LPs seek co-investments not least as a way of The weakest link? opportunity but lack the time or the resources to offsetting the effects of being cut back, as many GP concern over co-investment deals may stem diligence it properly. As Lai points out, “there is an are in the more popular funds. from selfish economic motivations, but it also has assumption that GPs will practice extra caution For GPs, the attraction is less clear-cut. one other very practical aspect. According to one for deals involving their LPs – they would risk According to Pak-Seng Lai, Managing Director unnamed GP, at least some of the LPs who try to damaging the GP/LP relationship if the deals turn and Head of Asia at Auda International, “the engage in co-investment may simply not be very bad.” This tends to be very much down to the rationale is that GPs may not be able to take good at it. The fears for a GP in such instances particular co-investment LP, though. As one says, “it

6 avcj.com | April 19 2011 | Volume 24 | Number 14 Cover Story [email protected]

is fair to say that the deals where we had a chance funds. “Who is starting major direct investment sourcing capability. And from the GP side, to do more due diligence produce better results.” programs in their own right? They’re most likely Andrew Liu of Unitas remarks that, “LPs generally to want to do co-investments,” asserts one fund see co-investments as a way to improve their Where and how to co-invest formation authority. This tends to be the larger returns, as most co-investment opportunities for Practical receptivity towards co-investments, pension funds and funds of funds. Individual LPs are on a reduced or no fee/carry basis.” where it can be found, tends to come only at HNW investors, smaller family offices and other That said, the economics on a co-investment the deal level, not at fund level. Although a few less powerful institutions tend to be far less deal may not be that attractive. The question of funds, especially newer and less popular vehicles, active in the co-investment space. To confuse whether an LP has to pay fees or carry on a co- may be ready to offer co-investment rights matters, some co-investment LPs may also do investment deal remains open, and renegotiated to their LPs, as feedback from fund formation deals as direct investors, partnering with GPs on a case by case. In some instances, the LP may find circles confirms, the more sought-after firms peer basis, rather than as co-investors with funds it is paying the same management fees and share will generally give at best token promises they invest in. of carry that it would have to in a normal deal. on co-investment rights at the fund level. As And even then, some of the most ostensibly Needless to say, it makes little sense for an another fund formation counsel notes, LPs may qualified LPs in Asia have been late or limited LP to participate in such deals without at least then receive co-investment rights in their side co-investors. The Government of Singapore some experience and capability in managing letters, to the extent these are allowed by the Investment Corporation (GIC), for example, only or supporting an investee company. In such limited partnership agreement. Sometimes did its first European co-investment deal in cases, LPs may undertake co-investments to gain these may be are weak ‘indications of interest’ December 2009, partnering with EQT Partners exposure or knowledge in a sector or region in co-investments; in other cases, these are on the EUR2.3 billion ($3.4 billion) secondary they do not currently have in their own portfolio. And, as leading co-investment specialists attest, they will often pick funds with a particular sector “By working on co-investments, LPs get to build or domain knowledge to invest with, to learn from that GP as well as to gain the benefits of a the relationship and learn more about the GP’s particular niche investment. LPs may also seek to do co-investments to get closer to their GPs. As investment process.” – Pak Seng Lai Lai says, “by working on co-investments, LPs get to build the relationship and learn more about the GP’s investment process.” enforceable rights – either priority rights or rights buyout of German media group Springer An LP’s co-investments also are an to participate pro rata with any other LPs in co- Science+Business Media from Cinven and opportunity to field-test the assumptions that investments. Candover Partners, with GIC picking up 18% of made it commit to the GP in the first place. As Coulter puts the case for a GP to grant these the deal. As at end 2009, GIC had completed 11 Coulter points out, “we have a very high level of rights. “Our preference is to source deals from the co-investments overall. conviction in these managers and expect that small or mid-market, local country funds, many general deal flow will be of a high-quality nature. of whom we have known or invested with for Fees on co-investments? We then have the opportunity to cherry-pick many years. In cases where we are an important Perhaps the most obvious driver for LPs to seek the very best opportunities, while ensuring our LP, GPs are normally quite receptive as they know co-investments, Lai confirms, is that “as LPs interests are aligned with the GP.” that attractive co-investment opportunities can typically do not have the resources to do a deal Overall, co-investments are likely to increase be a differentiator when the time comes for us independently, so they prefer to tag-along GPs as the Asian industry matures, as in so many to look at the next fund.” Interestingly, such funds and leverage their due diligence resources.” The other specialized areas of the asset class. But are just the ones often cited as some of the best prominent direct investment and co-investment they are just as likely to remain an arena for the performers in Asian private equity. LP confirms that co-investments lower the respectful battle of wills between GP and LP, The type of LP that seeks co-investment overall cost/ difficult to source deals directly in and a proving ground for the true capabilities rights is fairly obvious, at least in larger major areas where the fund does not have meaningful of both. Top 10 co-investment deal in Asia Date Value (US$m.) Stake (%) Investee Country Investor(s) Mar-07 1,572 100 Yellow Pages Group New Zealand Unitas Capital Teachers' Private Capital May-06 380 100 Super A-Mart Australia GIC; Ironbridge Capital Macquarie Funds ; Partners Group Oct-08 302 100 MYOB Ltd. Australia Archer Capital; HarbourVest Partners Sep-07 300 7 Kyobo Life Co., Ltd. South Korea AXA Private Equity; Corsair Capital; KAMCO Sep-06 293 63 Asahi Tec Corp. Japan Allianz Capital; Annex; Bank of America; Chuo Mitsui; ; GE Equity; MetLife; Mitsui; RHJ International; Wachovia Jun-10 281 10 Tangshan Jidong Cement Co., Ltd. China (PRC) Axiom Asia; GIC; New Horizon Capital; Siguler Guff & Co Sep-09 255 15 Aricent Technologies India Canada Pension Plan Investment Board; Kohlberg Kravis Roberts & Co May-01 136 80 Service Corporation International Australia BancBoston Capital; Industry Funds Management; Australia Pty Ltd. (SCIA) Macquarie Direct Investment; MGB Growth Fund Sep-09 123 61 Monash IVF Pty Ltd. Australia AXA Private Equity; Horizon Health; Ironbridge Capital; Pantheon Capital Nov-06 102 3 Emaar MGF Land Pvt. Ltd. India Citi Venture Capital; Evolvence Capital; Jacob Ballas Source: AVCJ Research

Number 14 | Volume 24 | April 19 2011 | avcj.com 7 AVCJ Private Equity & Venture Forum GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY

6TH ANNUAL avcjusa.com USA 2011 12 July The University Club of New York SAVE USD200 before 10 June 2011!

Asia’s booming private equity markets: Global leaders in performance and growth

Brought to you by The Asian Venture Capital Journal, the leading source of news and information on Asian private equity, the Forum is a one-day high-level briefing for US LPs and GP’s alike. Key topics include: • Which sectors and markets in Asia present strong value propositions for PE investments? • What are the short to mid-term infrastructure needs in different parts of Asia and how can investors capitalise on these opportunities? • Is Indonesia, a country rich in commodities with a huge emerging middle class, as potentially lucrative for investors as is publicised and as unexploited as China and India ten years ago? • Where do LPs place Asia on the roadmap for investment compared with the rest of the world? • What is so compelling about the Indian and China landscapes and how do you filter through the myriad of opportunities to find lucrative returns?

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Registration enquiries: Sponsorship enquiries: Anil Nathani - T: +852 3411 4938 - E: [email protected] Darryl Mag - T: +852 3411 4919 - E: [email protected] LP (excluding FoFs) complimentary registration request: Speaker enquiries: Joyce Wong - T: +852 3411 4845 - E: [email protected] Jonathon Cohen - T: +852 3411 4968 - E: [email protected]

AVCJ04-ad2 Focus: resources [email protected] China’s natural resources M&A on the ups

Hot on the heels of AVCJ’s recent to bring these onstream exacerbate this market opportunity that MMR couldn’t resist, hence it’s China M&A overview, in which higher highs situation. announced hostile bid of C$7 per share – a 23% were cited as likely in the country’s ongoing According to London Metals Exchange data, premium to the target’s closing share price on quest to secure future natural resources supplies copper prices have risen 120% over the past two April 1. to keep its development trajectory on track, years. On April 7, Equinox flatly rejected the MMR Minmetals Resources put forward a $6.5 billion From this assets standpoint, Equinox Minerals bid, calling it ‘opportunistic’. In the view of (C$6.3 billion) unsolicited takeover offer for is a compelling target, mainly because of its company president & CEO Craig Williams, the Canadian-Australian copper mining company Lumwana copper/uranium mine in Zambia – Chinese bid was aimed at ‘frustrating’ Equinox’s Equinox Minerals on April 3, the largest ever by a Africa’s third biggest – plus its interest in the Jabal bid to buy Lundin Mining. He said that the MMR Mainland Chinese mining company to this point. Sayid copper project in Saudi Arabia, which is offer amounted to only a 9% premium, far below MMR’s parent is China Minmetals, a state- due to start producing in 2012. other offers in current mining takeover bids. owned enterprise (SOE). It is also the country’s largest metals trader with a reputation for being aggressively ambitious; two years ago it acquired “Copper, iron ore and coal assets sit atop the lion’s share of Oz Minerals’ assets, a base metals miner Down Under, for $1.7 billion. China’s shopping list for offshore resource The current copper focus is easily understood investments.” – Andrew Driscoll given that China comprises 40% of current global demand for the red metal. And while the latter’s market price has slipped somewhat of late, overall demand projections are not expected to “Equinox has long been viewed as an Equinox chairman Peter Tomsett added in a follow suit: quite the reverse. attractive takeover target due to its large-scale statement: and long life copper asset in Zambia,” Andrew “The lowball price announced by MMR A key PRC acquisition priority Driscoll, regional head of resources with CLSA in significantly understates our value and disregards That’s because there is a pronounced shortage Hong Kong, told AVCJ. “Copper, iron ore and coal the potential of this company, especially in the of long mining life quality copper assets on offer assets sit atop China’s shopping list for offshore light of the continuing strength in copper prices.” at present, and likewise few new projects of resource investments. A Canadian market source, however, scale being developed. Moreover, generally high “(More broadly), ongoing M&A activity in the commented wryly that in terms of fair valuation, copper prices and the long lead time needed mining sector reflects both strong balance sheets Lundin has come out publicly calling Equinox and the limited investment ‘hypocrites’ because of their offering a lower opportunities for acquirers, premium for Lundin than MMR offered for and recognition that in some Equinox. cases it’s cheaper to buy than “If Equinox says Minmetals has offered it a bad build.” deal, then it offered Lundin an even worse deal.” But back to basics, Equinox is now in play, The trigger hoisted on its own petard so to speak. And The trigger that put the nature of its assets is likely appealing to Equinox in play was its own other global miners; so other bids are a distinct hostile C$4.7 billion bid for possibility. Vancouver-based Lundin The limiter, however, may prove to be the Mining in February, which perception of MMR’s deep pockets. Although involved saddling itself with their market value is only about $2.5 billion, considerable debt (a reported there is much more firepower than this suggests C$3.2 billion bridge loan). behind them in the form of Chinese bank credit Equinox’s investor base and support in the PRC. wasn’t solidly behind this “Having a powerful state-owned enterprise move, which caused its share as a major shareholder provides a significant price to sink to the point potential funding advantage for Minmetals China comprises 40% of current global demand for copper where it presented a windfall Resources,” as CLSA’s Driscoll notes.

Number 14 | Volume 24 | April 19 2011 | avcj.com 9 Funds [email protected] Asia Pacific fund terms to fore in tough times

The latest Asia Pacific Private Equity where the GP’s transaction and key person clause,” notes Eich. Fund Terms Survey from independent fund of other fees are offset against the But, Pierce warns,“it’s possible to funds group Squadron Capital highlights a few overall management fee. have a key person clause that shortcomings in regional funds’ adherence to Partly, this stems from is effectively meaningless” – or the Institutional Limited Partners Association “the relative preponderance unenforceable. (ILPA) principles, increasingly accepted as the of or lack of global T&C industry standard. But it also identifies buyouts” in Asia, as Squadron LP interest and the balance of many areas where Asia Pacific funds match or MD Wen Tan points out. And power even exceed lLPA guidelines, and other key areas as David Patrick Eich, Partner LPs ostensibly were where the principles themselves may fall short. at Kirkland & Ellis International, empowered by the 2008 crisis, And in today’s tough fundraising environment, adds, in Asia, “GPs are more but in Asia, other considerations which even in 2011 “has been severely affected amenable to a 100% fee offset may apply. “It’s going to be an across the region,” as John Fadely, Partner with partly because they generally extraordinarily interesting year Weil, Gotshal & Manges, affirms, even fashionable do not expect significant fees David Pierce, CEO of Squadron in terms of fundraising, because Asian vehicles need to look to the most attractive from portfolio companies.” of the crisis and the issues LP-friendly terms. around portfolio construction for institutional For David Pierce, CEO of Squadron (itself an Structural factors investors globally,” Pierce believes. But the ILPA member), perhaps the most significant Structurally, this is not the only area where Asia much-vaunted increase of LP power, he adds, is finding is “the dog that didn’t bark”: how far Pacific private equity is more LP-friendly than “a matter of supply and demand, and there is so regional funds already follow best practice. Western norms. As Pierce observes, “the issue in much demand out there for Asia at the moment.” Apparently, there is no emerging-markets quality US and EU PE has been very large funds that have However, as Fadely confirms, the discount in Asian fund T&C. Furthermore, this is the same terms compared to when they were preponderance of development finance a homegrown development. “Many of the funds much smaller. That isn’t such a huge problem institutions and SWFs, which “account for a weren’t aware there was such a thing as ILPA until in Asia, if it’s a problem at all.” However, he disproportionate part of Asian fundraising,” recently,” he tells AVCJ. “It wasn’t driven by ILPA so continues, with Asian fund sizes escalating, “it will creates greater momentum towards best much as what IIs had in mind for some time.” become an issue here.” practice, as these are often early closers, and Structural features of the Asian industry also carry great institutional weight. And Tan reports Fees and fund infrastructure manifest in less positive ways; as in the bias the “beginnings” in Asia of so-called sweetheart In fundraising as in telecoms, Asia seems to be towards PIPEs. Here, the market seems actively deals, where LPs receive preferential treatment skipping straight to the latest infrastructure, polarized, with “a trend to either restrict PIPE for being early, large or anchor investors. unfettered by legacy issues. “Clearly they’re investing or actually opening it up,” notes Pierce. Interestingly, he notes, “close to half the funds leapfrogging the knowledge base that was “There seems to be a bit of a barbell.” which are doing that are India-focused.” Anecdotally, Pierce sees some well-placed GPs pushing for, and getting, higher carry and other “Many of the funds weren’t aware there was such preferential terms. But the movement towards convergence around global best practice is clear a thing as ILPA until recently.” – David Pierce and inexorable, and almost all GPs are more investor-aware than they were prior to 2008. “Even the best and most sought-after funds have developed elsewhere, allowing them to move Team instability has also long been a concern increased their attention towards the distribution quickly to international best practice,” notes in Asia. “It’s a function of the rapid growth of of their product,” Pierce reports. “You see a huge Pierce. the industry, the opportunities for spinouts as boom in the placement industry here, which is According to the Survey, fund management well as probably some less than best practice in partly due to the demand factor, and partly due fees in Asia are slightly above global averages, terms of alignment of interest and structuring to some problems in their home markets. That but purely by tighter focus on the 2% norm: even of partnerships,” concedes Pierce. Here, the ILPA general raising of the game in terms of marketing fewer funds charge fees above 2%, and most of principles stress the importance of key-man and selling funds is coming out across the board.” those are under $250 million. And Asian funds are clauses, but give little guidance in structuring Overall, though, Fadely concludes that: “Those far better (at 70%) than the global average (less them. Independently, wiser LPs “are pushing for with outstanding records are still able to set the than 40%) in granting management fee offsets, a ‘second tier’ or in some cases even a ‘third tier’ terms.”

10 avcj.com | April 19 2011 | Volume 24 | Number 14 Deals of the Week [email protected] KKR inks largest-ever PE deal in Vietnam

Vietnam’s status as a rising star in in 2008, and the company further reported a rise by more than 1,653%, from $9.2 million to $161 Asia’s private equity landscape was validated this in net profit to $60 million, up from $19 million million. Fundraising in Vietnam reached its peak in week when KKR brokered the largest-ever PE deal the same period. With KKR’s backing, Masan 2007, when $1.4 billion was raised, but the boost in the market, acquiring a 10% stake in Masan Consumer looks to expand its FMCG offerings. from 2009 to 2010 exhibits the renewed interest in Consumer Corporation for $159 million. The deal marks KKR’s first investment in the market as the global economy heals. The deal values Masan Consumer Vietnam, and fourth in Southeast Asia, after If past example is anything to go by, KKR Corporation, formerly Masan Food, Avago Technologies, MMI Holdings may have correctly placed its bets. In November, and a subsidiary of domestic and Unisteel Technology, all Mekong Capital exited its stake in Masan Food private-sector powerhouse Masan invested out of Singapore. “KKR for gross return multiples of 2x and a gross IRR of Group, at $1.6 billion. The capital is bullish on Vietnam. It is a large 61% on the shares sold over an 18-month period. injection brings the amount Masan country with a young and growing “Masan Consumer is well-positioned to Consumer has raised through population. In the past decade, benefit from the favorable domestic trends private equity to $500 million, there has been considerable of rising wealth, urbanization, and a young garnered over the past two years. economic progress, structural population,” KKR’s spokesman added. As part of the agreement with reforms, and a notable increase in Masan Consumer’s parent, Masan Group, is KKR, Masan Group will dilute its living standards,” a KKR spokesman one of the largest listed private sector groups in holding in the company from 86.6% told AVCJ. “Demographic and the country. Aside from Masan Consumer, the to 78%, issuing 14 million ordinary Masan a market leader in social trends favor the rise of holding group also owns financial service brand shares to KKR. its sauce-making niche domestic consumption. These Techcombank and Masan Resources, which is Masan Consumer is touted include: population growth, labor involved resources and materials. In January, as Vietnam’s leading fish, soya and chili sauce force growth, urbanization, rising wages, rising Mount Kellett Capital Management invested producer, and the second-largest maker of disposable incomes.” $100 million for a 20% stake in Masan Resources, branded instant noodles. Its year-end revenue in According to AVCJ data, the amount of funds which owns the Nui Phao mine in Northern 2010 reached $272 million, up from $96 million raised for Vietnam between 2009 and 2010 rose Vietnam. Lashou ups ante for group-buying niche

Chinese group-purchasing website Lashou’s push for capital and differentiation founded by a consortium of high-profile backers, Lashou.com received $110 million in a Series come as group-buying players try to out- consisting of Groupon and private equity funds C financing round, bringing its total funding compete for netizens’ disposable dollars. An the Tencent Collaboration Fund and Yunfeng raised by VC to $166 million – the most capital investment of this magnitude for Lashou may be Capital. Both funds are newly established, and any group-purchasing company in China has enough to stave off further competition, at least one is backed by digital giant Tencent and the received, Lashou claims, coming as competition for a little while. other by Jack Ma, a co-founder of Alibaba.com. heats up in the category. According to the China GaoPeng’s launch came Milestone Capital led the round, which also e-Business Research Center, after Groupon itself offered included Richemont’s affiliates Reinet Fund SCA total Mainland internet sales to buy a 49% stake in Lashou, FIS, Remgro Limited and previous investors GSR reached RMB4.5 trillion ($684 valuing the company at $500 Ventures, Norwest Venture Partners and Tenaya billion) in 2010. This represents million in November 2010. Capital. The website has seen two previous a 22% increase from 2009, Lashou turned down the offer, funding rounds that collectively shore up $166 coupled with an increase in hoping of building a higher million. In December, Lashou raised $50 million shoppers from 2009 to 2010 valuation for its. The current from Tenaya, Norwest, GSR and Rebate Network. (from 121 million to 158 deal values the company at According to Lashou’s founder and CEO million). How much of this can Lashou shores up cash to prepare for $1.1 billion. Bo Wu, the capital will be used to expand its actually be funneled to group- a more crowded group-buying arena “As the Series A lead call centers, logistics offerings and its Lashou buying sites is so far unknown, investor of Lashou.com, we Experience Shops. “The group-purchasing market but Groupon sets the bar. Last year, Groupon are excited by the company’s continued market of China has huge potential,” Wu said. “Because turned down a $6 billion acquisition offer by traction and success,” said Richard Lim, Managing Lashou.com has a very healthy business model, Google, and is reportedly looking to IPO later this Director of GSR Ventures. “The management we are attracting the attention of many well- year, targeting as much as $25 billion. has managed to emerge as the clear leader in a known investment institutions both in China and In March, Groupon launched in China crowded market by focusing on providing value abroad.” under the name GaoPeng.com. GaoPeng was to both consumers and merchants.”

Number 14 | Volume 24 | April 19 2011 | avcj.com 11 Calendar of Events 2011

Global perspective, local opportunities

avcj.com

AVCJ Private Equity & Venture Forum – Australia & New Zealand 2-4 March, Sydney Melbourne International Venture Capital Conference 8 March, Melbourne AVCJ Outlook – Taiwan 2011 11 May, Taipei AVCJ Private Equity & Venture Forum – China 26-27 May, Beijing AVCJ Private Equity & Venture Forum – USA 12 July, New York AVCJ Private Equity & Venture Forum – Singapore 21-22 July, Singapore Infrastructure Finance & Development Asia – India 25-26 August, New Delhi AVCJ Private Equity & Venture Forum – Japan September, Tokyo AVCJ Forum 2011 7-10 November, Hong Kong AVCJ Private Equity & Venture Forum – India 1-2 December, Mumbai

To join Asia’s private equity elite in 2011, please contact Darryl Mag on +852 3411 4919 or [email protected] 12 avcj.com | April 19 2011 | Volume 24 | Number 14