In the News: 2004

Thai private equity fund sees busy 2004

Reuters
21 January 2004

Taking a different tack from big foreign rivals, a Thai private equity firm's strategy of long-term, small-to mid-sized investments may produce its busiest year in 2004, its director said on Wednesday.

A focus on deals of between $10 million to $35 million for three to seven years has helped Private Equity (Thailand) complete four deals worth two billion baht ($51.4 million) in 2003, up from one deal in 2002, when it started investing.

At the same time, foreign funds which have established a foothold in the Land of Smiles have closed no deals yet.

"We hope to invest more this year than last year," said Kanchit Bunajinda, director of Private Equity (Thailand), an affiliate of 19-year-old San Francisco-based Lombard Investments. His company helps mutual fund firm MFC Asset Management run the three-year-old Thailand Equity Fund.

"Large companies tend to go to capital markets directly. For small-to mid-sized firms they may be too small to attract foreign funds directly. We are also long-term investors. We can be patient and wait for exits."

The Thailand Equity Fund has $245 million it can use to buy, fix up and sell Thai firms at a profit, focusing on those recovering from the 1997/98 Asian economic crisis. Kanchit said the fund had used 20 percent of the money, but declined to discuss any pending investments this year or returns on investment. The fund has yet to exit any of its investments.

Major shareholders are the government, the International Finance Corp, top U.S. pension fund California Public Employees' Retirement System (CalPERS) and the Asian Development Bank.

DEARTH OF DEALS

Thailand - and Southeast Asian in general - has been unable to attract more than lukewarm interest from foreign bankers who have flooded North Asian neighbours Japan and South Korea with activity since the crisis.

From 1998 to mid-2003, Japan and South Korea's 100 buyout deals - the fastest-growing segment of the industry - made up 58 percent of the value of transactions in Asia. Thailand and Indonesia, which saw 20 deals, made up just five percent, according to Asia Private Equity Review.

This is despite an estimated two trillion baht worth of distressed assets languishing in the kingdom, either on banks' books or under the stewardship of the government.

But the Thailand Equity Fund has been successful in rooting out smaller deals that may fall below the radar of the big firms and only buys minority stakes in companies it finds interesting.

"During the crisis it may have been more of a benefit to buy distressed assets, but in the next few years the upside from that is limited," said Kanchit.

Its smattering of private equity deals include a one billion baht ($24 million) investment to top department store operator Central Pattana PCL (CPN.BK) in May 2003.

Kanchit said he would continue to focus on sectors capitalising on burgeoning economic growth the government expects to top eight percent this year: "I like anything consumer-related, export-related or tourism-related."

The ex-Merrill Lynch investment banker credited good cooperation between Lombard and its Thai unit for the success in completing deals when big foreign rivals have closed none.

"They let the Thai team negotiate and approach deals the Thai way," said the soft-spoken 37-year-old. "If you do something straightforward, like in the West, I believe you would never get a deal done, or get something not as good as what you'd like."

Foreign firms, which spend millions of dollars to conduct due diligence alone, blame their dearth of deal-making on Thailand's relatively immature bankruptcy laws and the small size of the deals to be made.

"Doing deals in Thailand is slow. It all comes down to the legal framework," said a representative of a prominent foreign fund specialising in distressed assets. "That's why we're struggling." ($1 = 38.93 baht).