Asia dealmakers bet their moolah on China not India

The world’s top private equity firms, including The Carlyle Group, Bain Capital and TPG, have raced to sign deals with Chinese companies across the business spectrum, from telecoms service providers to baby formula makers.

At the same time, many private equity funds, banks and even law firms have closed offices and cut staff numbers in other major Asian economies such as India and Japan.
“Valuation is becoming attractive again and, of course, China is the focus,” said X D Yang, Managing Director for Carlyle’s buyout fund in Asia.

More than 50 per cent of a professional audience at SuperReturn Asia Conference in Hong Kong last week voted China as the place for the best investment returns in the next three years, a straw poll conducted by the forum’s organiser showed. India ranked second, polling less than 20 per cent of the votes.

Limited opportunities

While Warburg Pincus is reducing staff in Mumbai, according to a source familiar with the issue but who was not authorised to speak to the media, and Bank of America-Merrill Lynch is closing its private equity team in Tokyo, global investors like Carlyle and TPG are adding professionals in Hong Kong and Beijing hoping to tap more China deals in this round of economic recovery.

“There’s too much money going into india, but not enough to exit from India,” said Ajay Relan, co-founder of India-focused private equity firm CX Partners.

“If this continues, this will be a problem for India,” he said, adding the opportunities for buyout deals in India remain limited as many local entrepreneurs are unwilling to cede control of their businesses.

Foreign exchange controls

Carlyle’s Yang told Reuters during last week’s conference that the US buyout giant now sees more deal opportunities in Southeast Asia and the so-called Greater China area, including Hong Kong, mainland China and Taiwan, than in India.

Meanwhile, global buyout giants such as Blackstone Group are launching yuan-denominated private equity funds after seeking to raise more money for deals in China, where foreign exchange controls are strict.

“The next one to two year period will be a golden opportunity for private equity firms in Asia,” said Michael Kim, a former senior Carlyle executive, who founded MBK Partners.  “It’s a rare time for us. China is definitely one focus,” said Kim, whose firm also focuses on South Korea and Japan.