Southeast An Overview of Trends in Select Sectors and Markets DecemberAsia 2008/January 2009 Region Snapshot* Duringuring 2007 and 2008, the private equity industry in the SoutheaSoutheastst Asia region seemed to recover from the collapse of private equity there followingfollowing the late 1990s • 2008 Population: 583 million fi nancial crisis. Despite residual concerns about political instability and corruption, and • Population Growth (2009): 1.5% worries that fallout from the US recession will worsen a slide in exports, the investment • % of Population Under 15 Years-old: 31% thesis for the region remains strong. Young and growing populationspopulations are rapidly develop- • 2008 GDP Current Prices: US$1,487 bn ing consumer habits; resource-rich economies like Indonesia standstand to gain from com- modity price gains and rising energy needs; trade relationships within the region and with • GDP Growth (2009): 4.8% other Asian partners are strengthening; and governments in the region continue to make • Infl ation (2008, 2009): 10.2%, 6.4% progress, albeit sometimes slow, toward economic reforms. Source: IMF, Population Reference Bureau. * Statistics refer to 10 countries: Brunei, Cambodia, Indonesia, Laos, Capital dedicated to private equity investment in the region has doubled over the last Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. eight years, rising from US$520 million in 2001 to US$982 million in 2008, after reach- ing a zenith in the 1990s. Between 2005 and 2008, the total value of private equity This issue of EMPEA Insight focuses on the Southeast investment in Southeast Asia nearly quadrupled, increasing from US$1.3 billion to US$5 Asian countries of Singapore, Thailand, Vietnam, billion through December 2008. Activity within the region has been led by Singapore Malaysia, Indonesia, Cambodia and the Philippines; and Malaysia (primarily due to the prevalence of larger buyout transactions within those the other countries in the ASEAN region—Brunei, Myanmar and Laos—were not included due to limited markets), followed close behind by up-and-coming Indonesia, the largest single market PE activity in those markets. representing 40% of the population and one-third of GDP among ASEAN countries. While several pan-Asian funds have turned their eyes toward the enormous opportunity of China and India, those mandates include an increasingly large Southeast Asian strat- egy as funds look to diversify their exposure. Domestic private equity is also developing within the region; in addition to a number of funds that specialize in Southeast Asia, several markets are developing deeper benches of managers focused on their home markets—Vietnam, Indonesia, Malaysia and Cambodia in particular. continued on page 2 Southeast Asia Funds Raised (2001–2008) $1.2 Vietnam $1.0 Thailand $0.8 Southeast Asia $0.6 Singapore US$ Billions $0.4 Malaysia Indonesia $0.2 Cambodia $0.0 2001 2002 2003 2004 20062005 2007 2008 Brunei Sources: Asia Private Equity Review; EMPEA (2006–2008). Note: Fundraising fi gures include only Southeast Asia-dedicated funds, while investment totals include as well deals executed in the region by global, pan-Asian or pan-EM funds. © 2008 Emerging Markets Private Equity Association 1 EMPEA Insight: Southeast Asia December 2008/January 2009 Country 2008 Pop. % Pop. 2008 GDP 2009 the region between 2005 and 2008. (millions) under 15 (US$B) % GDP Growth In 2008, Indonesia drew the bulk of capital aimed at a singular (Forecast) Singapore 4.7 19% 192.8 3.5% market, with 35% of capital raised. Singapore, Vietnam and Ma- laysia followed, with 20%, 16% and 15%, respectively, of the to- Cambodia 14.6 36% 10.8 6% tal raised by country-dedicated funds in 2008. As of December Malaysia 27.3 32% 214.7 4.8% 2008, there were at least 20 funds looking to raise US$2.5 bil- Thailand 66.4 22% 272.1 4.5% lion, of which roughly US$600 million has already been raised, Vietnam 86.8 26% 90.9 5.5% with an average target fund size of US$160 million. Philippines 90.3 35% 172.4 3.8% Indonesia 227.8 29% 496.8 5.5% Currently, the majority of pan-Asian investors have some degree Sources: IMF, Population Reference Bureau. of exposure to the region, and in recent years a number are in- Although conventionally grouped together, the “Southeast creasingly looking to diversify their portfolio away from China Asian” label glosses over signifi cant cultural diversity and re- and India. One example is Texas Pacifi c Group, which invests op- gional fragmentation among the individual markets.1 However, portunitistically in Southeast Asia through its US$4.3 billion TGP with a total population of 583 million, a regional GDP larger than Asia V fund, and via regional affi liate Northstar Pacifi c. Global India’s and 40% of China’s, private equity investors see poten- media investor Providence Equity Partners and Hong Kong- tial in growth investments in companies that can serve as a plat- based fi nancial services specialist Primus Pacifi c Partners both form to tap the attractive regional opportunity. The ASEAN mar- invest in the region through pan-Asian strategies. kets also present an increasingly attractive path to expansion Other large players are looking to more proactively seek regional for Australian, Indian and GCC companies and investors looking opportunities. Australian player Champ Private Equity opened to take advantage of cultural and linguistic synergies. an offi ce in Singapore in 2007. Also in 2007, the Carlyle Group began building its Southeast Asia team out of Singapore, with Fundraising Trends the intention to invest in buyouts out of the fi rm’s US$668 mil- lion Asia Growth Partners III fund. EMPEA’s data reveals that funds focused on Southeast Asian continued on page 3 private equity investments raised US$982 million through De- EMPEA Insight cember 2008, roughly even with the US$986 million raised in Editorial Director Jennifer Choi 2007 , and representing only a slight decline from the 2006 [email protected] fi gure of US$1.1 billion. Southeast Asia-dedicated funds con- Writing and Research Alexander Adrian / [email protected]; Holly tinue to account for a relatively small portion of capital raised Freedman / [email protected]; Harrison Moskowitz /moskow- [email protected] for Emerging Asia private equity investment: 2.6% in 2008, ver- sus 3.4% in 2007 and 5.9% in 2006. Southeast Asia’s share of Production Manager Cristiane Nascimento [email protected] fundraising held relatively steady during that period while the Advertising Opportunities pie nearly doubled, driven by surges in capital raised for invest- EMPEA Insight offers readers an overview of the data and drivers ment in China and India. behind investment trends in emerging markets private equity. Each issue of EMPEA Insight provides an opportunity for a single Indonesia dwarfs the others with a population of 228 million, exclusive back page advertisement. Issue-specifi c placements are with the Philippines and Vietnam with 90 million people each. on a fi rst come, fi rst served basis. For a list of upcoming issues and Due to the small size of individual markets, most investors look- more information about advertising opportunities and rates, contact ing for exposure to the region are more inclined to invest via Cristiane Nascimento at [email protected]. pan-Asian funds with activity in ASEAN, or through Southeast About EMPEA Asian funds, which drew 22% of capital raised for investment in The Emerging Markets Private Equity Association (EMPEA) is an independent, member-based global industry association that 1 Singapore—as a regional fi nancial hub with well-developed equity, credit and debt promotes greater understanding of and a more favorable climate for markets—is treated in most analyses (such as MSCI) as a developed, not emerging, market. private equity investing in the emerging markets of Africa, Asia, Cen- tral/Eastern Europe and Russia, Latin America and the Middle East. 2 © 2008 Emerging Markets Private Equity Association EMPEA Insight: Southeast Asia December 2008/January 2009 The region is also drawing interest from Middle East players, Southeast Asia Private Equity Investment by Country such as Dubai International Capital and Istithmar, looking to tap (2005–2008) the Islamic Finance opportunity through shari’ah-compliant ve- hicles. Southeast Asia is home to one-third of the world’s Mus- Singapore lim population, and an estimated 10% of financing in Malaysia Malaysia is executed through Islamic banking channels. Philippines A number of pan-Asian and pan-emerging market firms are build- ing up Southeast Asian portfolios, occasionally through regional Indonesia vehicles focused on ASEAN markets. Firms investing opportu- nistically out of pan-Asia funds include AIF Capital, through its Vietnam US$435 million growth fund closed in 2006, Henderson Equity Thailand Partners, currently raising a US$400 million Asia fund, CVC Asia Pacific and Baring Private Equity Asia. Emerging markets investor Sources: Asia Private Equity Review, EMPEA. Actis, which has led some of the region’s more notable buyouts, fund management industry, was the darling of the region before invests in Southeast Asia both through a 2006 US$130 million market conditions began to deteriorate in late 2008. regional fund and its pan-emerging market funds, including the recently closed US$2.9 billion Emerging Markets 3 fund. Vietnam boasts at least a dozen firms investing across the PE spectrum—from technology VC to middle market private equity Middle-market emerging markets specialist Aureos Capital man- to pre-IPOs—such as veterans Mekong Capital and Vinacapital ages multiple funds within the region, including a 2005 US$91 (which runs multiple funds, including the first Vietnamese fund million Southeast Asia fund, and dedicated Malaysia and Brunei to list on London’s AIM, the Vietnam Opportunity Fund). Mekong funds closed in 2008, which will be rolled into the firm’s next re- is currently raising its third fund, after closing a US$100 million gional fund.