Southeast Asia will be the net beneficiary of the ongoing trade war between China and the US, according to a top executive of Hong Kong-based private equity (PE) firm ShawKwei & Partners.
“The conflicts between China and the US, Korea and Japan, Germany and Europe, and UK and Brexit … are creating disruptions across multiple economic areas,” Kyle Shaw, founder and managing partner, ShawKwei & Partners, told DealStreetAsia.
Founded over two decades ago, ShawKwei made a final close of its fourth pan-Asia vehicle – the Asia Value Fund 2017 – at $812 million last October. The firm invests in B2B sectors such as precision engineering and manufacturing, automotive, maritime, oil and gas services and solar power.
The latest vehicle made its first investment in Singapore-based oil and gas services firm Gaylin Holdings in a transaction worth $100 million that included debt restructuring. The company had then merged with one of ShawKwei’s portfolio company, AMOS, and was rebranded to Amos Group Limited.
As more global firms are raising Asia-focused funds, competition in the region in terms of PE investments is increasingly intensifying, said Shaw. However, he noted that fundraising is slated to get tougher in the years to come.
“With a softer economy, fundraising will be more difficult and doing deals and managing portfolio companies will also be more difficult. There’s going to be a shakeout in the PE industry in the future.”
In the past year, several mid-market buyout firms in Asia raised funds to invest in the region. While Swedish investment firm EQT Partners closed its Asian mid-market fund EQT Mid Market Asia III at $800 million in May 2018, Singapore-based Southern Capital Group closed its fourth regional fund at $500 million a few months ago.
And, these are not the only ones. Malaysia-based Creador recently raised $565 million for its fourth fund to invest across Southeast Asia and India, exceeding its hard cap of $550 million. It is the largest vehicle raised by the firm so far.
“The easiest thing a private equity firm does is to make a new investment but getting out of it? That’s the hard stuff. I expect soon you will have less new players coming into PE and some people who are not really committed for the long run will exit the Asian PE space,” he said.
There is a slew of PE firms that are currently on the road to raise capital. These include Kuala Lumpur-headquartered Navis Capital that is seeking to raise $1.75 billion for its eight fund – the biggest in Southeast Asia. It reached the first close in April and is expected to hold a final close by the end of this year.
Singapore-based KV Asia Capital is also looking to raise about $300 million for its second fund. We reported the firm is seeking buyers for one of its portfolio companies – Malaysian hypermarket chain TF Value Mart. With a 1 billion ringgit ($240 million) price tag, the retailer is said to have drawn interest from global PE firms KKR & Co. and Warburg Pincus.
Edited excerpts of an interview with ShawKwei & Partners founder and managing partner Kyle Shaw:
How has the year been for you?
We’ve been very busy working with our portfolio companies. We also had an exit earlier this year so that took up some time and resulted in a good outcome for ShawKwei. Basically, we are now preparing our portfolio for a more difficult economic environment that is ahead of us. We also are looking for new deals and opportunities, but we and our investors are patient, and so we do not feel a need to quickly throw money at investments.
How has the journey been in terms of restructuring Gaylin?
It’s been quite involved as we expected. We bought a 73 per cent stake in Gaylin in March 2018 through a new share issuance of $52 million of new capital into Gaylin. We also renegotiated the bank loan facilities and brought in new lenders to replace the old ones for altogether about $100 million of financing for Gaylin. In October 2018, we announced the merger of Gaylin with AMOS International Ltd and rebranded the combined group of companies as Amos Group Limited, which basically doubled the old Gaylin in terms of revenue supplying the marine and offshore industries.