The local buy-out and corporate restructuring markets are maturing to reveal lucrative commercial opportunities for potential investors including investment banks, analysts said yesterday.
"The size of the local buy-out market may reach NT$450 billion," said Benny Hu (胡定吾), chairman of China Development Industrial Bank (中華開發工銀) in his opening remarks at a seminar organized by his bank.
Hu said that he based his estimate conservatively on 5 percent of the total value of the nation's listed companies, which amounts to NT$9 trillion. The buy-out market amounts to up to 20 percent of the capital markets' value in other countries, he said.
To tap into the buy-out market, Hu said China Development plans to invest NT$1 billion and partner with the US' Morgan Stanley and Japan's Mizuho Corporate Advisory Co to establish a US$300 million buy-out fund to take a sizeable stake in the market in the near future.
Jack Huang (黃日燦), a lawyer with Jones Day (眾達國際), agreed with Hu's assessment, saying that the nation's top 1,000 corporations, except for the top 200, are attractive targets for buy-out investments.
"Those that have performed well in the past but are facing slow growth as they try to catch up with current economic conditions are perfect targets," Huang said.
Buy-outs, however, no longer generate the yields they used to. Hu said he expected returns on the bank's future buy-out investments to average 25 percent a year.
In contrast to the potential buy-out market, Huang said, the local corporate restructuring market's prospects remained unclear. At the seminar, he lauded the restructured Tong Lung Metal Industry Co (
Tong Lung, established in 1977, ran into great financial difficulties in 1998 after its president, Fan Fang-kuei (
To ease investors' panic, a team of financial consultants including lawyers from Lee & Li Attorneys-at-Law (
After identifying Tong Lung to be a worthwhile investment that still enjoyed competitive advantages, the Hongkong and Shanghai Banking Corp (HSBC) injected NT$1.8 billion into the company in 2000, taking a more than 70 percent stake that enabled the company to implement its restructuring plan.
After HSBC became the biggest shareholder, the company's board was immediately reshuffled to recruit professionals, while negotiations began with debtors to hammer out a feasible plan to repay its debts.
After two years, Tong Lung went from being a bankrupt company with a negative net value of NT$3.3 billion to the 59th largest in the nation, HSBC Private Equitey (Asia) Ltd director Vincent Chen (
Chen, who doubles as Tong Lung's vice chairman and president, said the company's debts to banks will decrease from NT$6.2 billion to NT$1 billion this year, while its net value will increase to NT$900 million, with a projected earning per share (EPS) of NT$5 this year.
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