Leveraged buyout loans in Asia are set to increase as regional firms mature and seek to grow via acquisitions, French banking giant Credit Agricole SA said.
Merger and acquisition activity in the Asia-Pacific region has increased by 67 percent this year to US$312.4 billion, led by deals including Temasek Holdings Pte’s part purchase of Olam International Ltd, and Oversea-Chinese Banking Corp’s (新加坡華僑銀行) US$5 billion takeover of Hong Kong’s Wing Hang Bank Ltd (永亨銀行).
The number of leveraged finance transactions completed in emerging Asia in the first three months of the year rose by 28 percent to 169 versus the same period of last year, data from the Emerging Markets Private Equity Association (EMPEA) show.
“In Asia, the leveraged-loan market will emerge quite significantly over the next few years,” said Olivier Carcy, the Geneva-based global head of private equity at Credit Agricole’s private banking unit.
“Companies have reached a certain maturity over the last 15 years where entrepreneurs want to cash in and that will lead to more transactions,” Carcy added.
About US$4 billion in fresh capital was raised in emerging Asian markets in the first quarter, led by Affinity Equity Partners Ltd’s fourth buyout fund, which drew US$1.3 billion to reach a final close of US$3.8 billion, EMPEA data show.
Since European and US banks scaled back their regional presence during the global financial crisis, Asian lenders have built their leveraged finance teams and are ready to put capital to work, Carcy said.
About 61 bank loans — totaling US$21.4 billion — whose proceeds were used for acquisitions have been signed in the region since Dec. 31 last year, compared with 99 that totaled US$29.1 billion in the first five months of last year, according to data compiled by Bloomberg.
Buyout money is also coming from more traditional players.
Carlyle Group LP, the world’s most acquisitive private equity firm with 350 transactions, is expected to raise five further funds toward the end of this year, with two of those focused on Asia, Bloomberg data show.
Meanwhile, CVC Capital Partners Ltd, completed raising its fourth Asia fund of about US$3.5 billion earlier this month and agreed to buy a majority stake in Hong Kong-based serviced office provider The Executive Centre Ltd on May 21.
Credit Agricole Private Banking has co-invested about US$100 million in four private-equity funds with a pan-Asian focus, Carcy said. It expects to invest another US$100 million this year in Asia.
“Some say Asia isn’t primed for leveraged buyouts because of the prevalence of family-run companies,” Carcy said. “But it’s just a matter of maturity. Once the markets develop to support leveraged buyouts, they’ll naturally emerge.”
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