Asia's private equity industry has quickly turned into a sellers' market, as firms cash out of investments made on the back of the region's robust economic growth. And the trend is expected to continue as long as Asia's stock markets remain steady and institutional demand holds up.
In the near term, that means more initial public offerings (IPOs) backed by private equity firms and more cash on hand for them to spend on new Asia deals, bankers say.
For many years, private equity executives noted that while a lot of buyout industry money was going into Asia, not much of it was coming out, especially in a market like China, where foreign investment is tightly controlled. Yet that sentiment changed in 2010, as the volume of private equity exits in Asia overtook new investments made by buyout firms. While China's stock markets ended 2010 with a whimper, their growth has far outpaced other global markets since the crisis, spawning an IPO boom that began in the spring of 2009.
As of late last year, private equity-backed IPOs hit a record $28.9 billion, compared with $27.9 billion in new investments, according to Thomson Reuters data - marking the first time in five years that buyout firm exits in the region exceeded acquisitions.
Even in China, long a coveted and yet difficult foreign private equity market, buyout firms finally struck gold: TPG Capital cashed out of Shenzen Development Bank for $2.4 billion and Carlyle Group launched an exit that could reap around $4 billion in profit from its stake in China Pacific Insurance. Private equity firms typically raise money from institutional investors such as pension funds, and purchase controlling stakes in companies by borrowing around two-thirds of the cash needed. After cutting costs and streamlining, they sell the stakes a few years later, keeping 20 percent of the profit, and handing the rest back to investors.
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