PRIVATE equity (PE)-type investments will continue to have a presence in the Malaysian corporate landscape, with the number of deals to be struck possibly growing, say industry players.
But while there are many deals to be done, perennial challenges remain, such as asset owners not keen in letting go of their struggling assets and the delay in the Government’s promise of divesting its business interests.
Still, an encouraging landscape for PE deals has been laid, driven by a significant number of PE deals closed this year.
Top on the list was the buyout of KFC Holdings Bhd by Johor Corp (JCorp) who teamed up with UK-based PE player, CVC Capital Partners and Malaysia’s Employees Provident Fund (EPF). Although that deal was first announced in 2011, it took the whole of 2012 for it to come to completion.
In the context of PE, the KFC buyout is very significant. Firstly, its deal size of US$1.65bil puts it among the biggest in the entire region in recent times.
Secondly, recall that in 2010, some of the global PE names had been scouring for a slice of the fried chicken retailer. For some reason, word had got out that KFC was “in play” in the sense that its ultimate shareholder,
JCorp, was willing to let go of this asset. The Carlyle Group had put in a bid. And Kohlberg Kravis Roberts & Co (KKR) was then said to have expressed interest in KFC.
In the end, it turned out that JCorp was doing the opposite it was seeking to privatise KFC and was looking for a PE partner for that process and ended up with the CVC. Still, the delay in seeing this come to fruition does illustrate some of the challenges of PE deal making in Malaysia.
It isn’t entirely clear why the buyout took so long, but the fact that the EPF was later brought into the deal it was initially planned as a buyout by only JCorp and CVC does give you some indication that major deals in Malaysia, perhaps will need the sanction of a large government fund to fend off detractors.
Another notable deal this year was done by Malaysian-based Navis Capital Investment Ltd, which is one of the bigger PE players in Asia.
Navis launched a cash takeover for education outfit SEG International Bhd together with the company’s major shareholder in a deal valued at RM1.14bil.
2012 also saw Navis buying into the companies and own BIG Cinemas and MBO Cinemas, making the combined group into a top three player in the country.
Nicholas Bloy, managing partner for Navis Capital, said: “It was a busy year for Navis, with the investments in SEG International, MBO and BIG cinemas.”
When asked for his outlook generally of the PE scene in Malaysia for 2013, he said: “I think it will pick up in 2013 as interest in Asean and Afta is high.”
But industry players also hold the view that while there are many assets that are prime for a PE entry, deals aren’t that easy to be struck. They cite some examples.
Last May, when RHB Capital Bhd‘s 25% shareholder Abu Dhabi Commercial Bank was looking to divest its stake, news reports had said that a number of international PE names had been keen on buying that block. That included Japan’s Sumitomo Mitsui Financial Group and private equity firms Carlyle and JC Flowers.
However subsequent news reports alluded to the fact that Bank Negara had preferred to see RHB Cap merging with a local banking partner, rather that seeing the entry of a PE player to take a major stake in a local bank.
Hence regulatory challenges will remain in some instances for PE players wanting to do deals in Malaysia.
On a more positive note, a June 2012 report by McKinsey & Co noted that interest in Malaysia’s PE business is on the rise following several high-profile deals in the country last year.
“Although the market is still relatively small, deal volume is growing and interest has been building up after Khazanah Nasional Bhd indicated it would continue to divest its stakes in government-linked companies,” a McKinsey official had been quoted as saying earlier this year.
The report however also highlighted that investors are more keen on South-East Asia’s more populous countries such as Indonesia and Vietnam. Another market that is seeing increasing PE interest is Myanmar.
Source: The Star
Published: Saturday, January 5, 2013
By: RISEN JAYASEELAN
THE CHAMBERS OF LEE & CHONG 