Quarterly Review a Publication of the Emerging Markets Private Equity Association ● Volume V, Issue 3, Q3 2009 October 2009
Total Page：16
File Type：pdf, Size：1020Kb
Emerging Markets Private Equity Quarterly Review A Publication of the Emerging Markets Private Equity Association ● Volume V, Issue 3, Q3 2009 October 2009 Viewpoint In This Issue With consensus growing that we are turning the corner to recovery, now seems an appropriate time to take stock of the impact of the crisis on emerg- FEATURES ing markets private equity. The good news is that most emerging economies weathered the crisis intact, RMB Funds—The Current State and and some are in fact leading the global recovery. The not-so-good news is Way Forward: A Legal and Tax Wish emerging market fund managers’ dependence on the hardest hit Western List (Expert Commentary) 3 institutional investors has made fundraising extremely difficult. As reported in this issue, fundraising through mid-year fell 55% year over year, testament to the internal capital constraints tying the hands of even the most enthusiastic Distressed Private Equity: potential investors for the next few quarters. The 52% year over year drop in Is There an Attractive investments, by contrast, seems to be a temporary side effect of the crisis. Investment Opportunity in Fund managers who have capital were waiting for markets to stabilize and the Emerging Markets? 9 valuations to sink lower. There are already signs of a pick-up in deal activity in the second half of the year. To put the gloomy start to 2009 into perspective, it’s important to note that fundraising and investment totals for the first six Fundraising and Investment Slows months of 2009 still exceed those for all of 2004, and are on pace to match Down Through Mid-Year 16 2006 activity levels. NEWS AND Data One key driver for the continued vibrancy of the asset class will be increased diversification of sources of capital to include local institutions, and the nec- essary regulations allowing for comingled capital. This issue includes expert Member News 18 commentary from EMPEA members Clifford Chance and KPMG on the legal and tax considerations for creating such a framework for China RMB funds, and serves as an excellent preview of the topics for discussion at the upcom- Funds Launched & Closed 20 ing 2nd annual Beijing Private Equity Forum, co-hosted by EMPEA and the Beijing Private Equity Association and taking place November 8th and 9th. EM PE Performance 21 While the China growth story has been a pivotal part of the recovery narra- tive, the expected boom in distressed investments has yet to materialize. Notable EM PE Exits & IPOs 24 EMPEA’s findings from a recent study for the International Finance Corpora- tion, summarized in this issue, suggest that pockets of distressed opportuni- ties do exist, particularly in Emerging Asia and Central and Eastern Europe. EMPEA Members 25 However, most sellers remain more “stressed” than distressed, as use of leverage leading up to the crisis was minimal, and restructurings have been slow in coming. A small set of players are well-positioned to exploit the grow- Featured Events 28 ing stream, rather than flood, of deal flow as it emerges. Looking ahead to our inaugural Africa PE event with the Financial Times on November 2nd, and the 5th Annual Emerging Markets Private Equity Forum on November 3rd and 4th, we anticipate some vigorous stock taking from the podiums and in the hallways of London. We hope you can join us there. Sarah E. Alexander, President Emerging Markets Private Equity Association Emerging Markets Private Equity Association 1055 Thomas Jefferson St. NW, Suite 650, Washington DC 20007 Tel: +1.202.333.8171 www.empea.net About EMPEA The Emerging Markets Private Equity Asso- ciation (EMPEA) is a non-profit, independent, Executive Editor global industry association that promotes Sarah E. Alexander greater understanding of and a more favor- able climate for private equity and venture Editorial Director capital investing in the emerging markets of Jennifer Choi Africa, Asia, Europe, Latin America and the Middle East. Writing and Research Harrison Moskowitz EMPEA was founded in 2004 with the be- Nadiya Satyamurthy lief that private equity and venture capital Scott Scheide can be critical drivers of economic growth in emerging markets while simultaneously Production generating strong returns for investors. Blue House www.bluehouse.us In support of its mission, EMPEA: • Researches, analyzes and disseminates © 2009 Emerging Markets Private Equity Association authoritative information on emerging markets private equity; All rights reserved. Emerging Markets Private Equity Quarterly Review is a publication of the Emerging Markets Private Equity Association. Neither • Convenes meetings and conferences this publication nor any part of it may be reproduced, stored in a retrieval around the world to promote information system, or transmitted in any form or by any means, electronic, mechanical, exchange between leading fund manag- photocopying, recording, or otherwise, without the prior permission of the ers and institutional investors; Emerging Markets Private Equity Association. • Offers professional development programs Subscriptions to enhance knowledge transfer; and, For subscription or single issue purchase, visit www.empea.net or email empea@ empea.net. Subscription for one year (4 issues) is US$495. EMPEA members • Collaborates with stakeholders from receive the Emerging Markets Private Equity Quarterly Review for free. across the globe. Advertising Opportunities The Emerging Markets Private Equity Quarterly Review offers readers an analytical and factual look at private equity investing in emerging markets. The Quarterly Review features include regional and country market analysis, an overview of current trends in the industry, benchmark data from Cambridge Become a Member Associates, and guest articles from leading thinkers and practitioners. The Emerging Markets Private Equity As- Its readership comprises a broad array of private equity fund managers, sociation is the only global body that rep- institutional investors, service providers, and other key stakeholders in the resents the growing industry of emerging industry from more than 50 countries. markets private equity. As a leading global player, EMPEA offers features that meet Advertising opportunities are available for upcoming issues. For more the needs of a broad range of institutions information, please contact Cristiane Nascimento, Communications and active in emerging markets, including Gen- Marketing Manager, at [email protected] or +1.202.333.8171. eral Partners (GPs), Limited Partners (LPs), business associations, service providers, EMPEA multilateral and academic institutions, and 1055 Thomas Jefferson Street NW, Suite 650 governmental bodies. Washington, DC 20007 USA Tel: +1.202.333.8171 • Fax: +1.202.333.3162 For more information on how to become www.empea.net a member visit www.empea.net or con- tact Kyoko Terada at [email protected] or +1.202.333.8171. 2 EM PE Quarterly Review Vol V Issue 3, Q3 2009 Expert Commentary RMB Funds—The Current State and Way Forward: A Legal and Tax Wish List Recent headlines on interest in establishing RMB-denominated funds in China underscore the growing importance of issues relating to the coexistence of domestic and offshore fund sponsors and capital not only in China, but across the emerging markets. EMPEA is proud to present the following expert opinion on issues for consideration in building a framework for the Chinese market, contributed by John Fadely of Premier Member Clifford Chance and John Gu of As- sociate Member KPMG. Recently several international fund sponsors have announced Shanghai and other municipalities have played an impor- plans to establish Renminbi (RMB) private equity funds for tant role by introducing incentives for offshore sponsors to investors based in the People’s Republic of China (PRC), as establish wholly foreign-owned and/or –invested fund man- summarized in the table below. RMB venture capital funds agers based in the PRC. On March 5, 2009, the Ministry of that include participation from foreign investors have existed Commerce (MofCOM) signalled its support for this decen- in a limited application since 2000. However, these announce- tralized approach by officially delegating approval authority ments have drawn renewed attention to RMB funds as a po- over foreign-invested venture capital investment enterprises tential means to access the growing pool of capital in China (FIVCIEs)1 to the Ministry’s provincial level branches. These as well as deal flow, and to invest without having to obtain developments suggest growing recognition of the potential the governmental approvals required of offshore funds. Inter- contributions that offshore fund sponsors could make to the est in RMB funds will certainly continue to grow, given the development of China’s private equity industry. increasing viability for exits through China’s capital markets and the anticipated strengthening of the RMB against the Although recent developments are encouraging, impedi- U.S. dollar. ments remain to greater foreign participation in China’s Exhibit 1: Sampling of RMB Funds and Foreign-Invested Managers Established in Pudong, Shanghai (as of 7 September 2009) Offshore Sponsor (PRC Co-Sponsor) Announced Name Announced Fund Size Approved Foreign-Invested Fund Managers First Eastern Financial Investment Group First Eastern (Shanghai) Equity Investment RMB 6 billion Management Co., Ltd (Zhongqidong Fund) Zhongqidong (Shanghai) Equity Investment Not known Management Co., Ltd CLSA Asia-Pacific Markets Guosheng CLSA (Shanghai) Industrial Investment RMB 10 billion (Shanghai Guosheng Group Co.) Management Co., Ltd Prax Capital Management Co. Prax Equity Investment Management (Shanghai) Co., Ltd RMB 1.5 billion DFJ Dragon Fund China DFJ Dragon (Shanghai) Equity Investment Not known Management Co., Ltd Foreign Investors with Intent to Establish Foreign-Invested Fund Managers (based on press reports) Blackstone Group N/A Not known Kohlberg Kravis Roberts & Co N/A No less than RMB 5 billion Carlyle Group N/A No less than RMB 5 billion Private Equity Arm of Goldman Sachs N/A Not known Approved Foreign-Invested RMB Fund Blackstone Group Blackstone Zhonghua Development Investment Fund RMB 5 billion 1 With registered capital under US$100 million.