CVC, Other PE Firms Taking Hits in Asia

HONG KONG (Reuters) – It’s been a tough stretch for the Asian portfolio of CVC Capital Partners, a large private equity firm that is taking hits from all parts of the region.

The firm recently failed to dispose of Amtek Engineering, the Singapore metal stamping company it bought last year, and is trying to sell Japanese shoe repair company Minit Asia Pacific in an acquisition climate getting worse by the day .

London-based CVC also has several Asian portfolio companies under pressure and a $4 billion fund to spend in a region where deals are getting smaller and scarcer as global financial turmoil deepens.

But CVC is not alone, with Asia portfolios of other major Western private equity firms being hit as well and tough markets making it hard for them to take profits on earlier investments.

TPG Capital, which also raised a $4 billion Asian fund, has invested in several finance-related companies that are hurting from the economic slowdown, while shares of Ta Chong Bank (2847.TW), a Taiwan bank backed by the Carlyle Group, are down aroud 50 percent this year.

Private equity firms rushed to Asia in the last few years to cash in on the region’s booming economy, only to find a tougher than expected deal climate. The economic slowdown across Asia and recent market volatility has made the going even worse.

For CVC, the latest disappointment is the failure to sell Amtek, which it bought along with Standard Chartered’s (STAN.L) private equity unit for S$552 million last year. Reuters reported in August that CVC and StanChart were preparing to sell the company, which had shown a big increase in cash flows.

The two firms thought they had private equity buyers lined up, but bank financing tightened quickly. Talks with potential suitors have broken off, sources confirmed this week.

The sources are investment banking sources who have worked with CVC, and a person with direct knowledge of CVC’s Asia portfolio. None of them wanted to be named in this article.

A CVC spokesman declined to comment.

CVC is also trying to sell Minit Asia Pacific Co. Ltd, which it acquired for 14.5 billion yen in 2006, according to the source with knowledge of the portfolio. While the source said that four bidders have emerged and final offers likely to come next month, pulling off a deal in this environment would be remarkable.

“This is certainly a tough time (for the industry) even in Asia and China,” said Liu Erhai, managing director of Legend Capital, the investment arm of Lenovo (0992.HK), China’s top PC maker.

His concern was slumping stock markets and the impact that has had on private equity firms trying to cash out of investments by taking companies public through initial offerings.

“From the perspective of private equity investors, the IPO as an exit channel is very important, in particular in Asia and China where we do not have too many other choices to exit.”

TOUGH TIMES IN ASIA

CVC Capital is a respected name in the private equity business. The net internal rate of return (IRR) for the 2000 Asia fund was 31 percent, or 8 percentage points above a benchmark for top funds, its website says. Its European funds outperformed the same benchmark, the 2005 fund, by a huge margin.

But according to CalPERS, the California pension fund that invests in CVC funds, the net IRR on the 2005 CVC Asia fund was less impressive. CalPERS put $100 million into that fund, earning a net IRR of 0.3 percent, according to the CalPERS website.

CVC’s website says its Asian portfolio has 14 investments.

It owns 75 per cent of embattled Australian media company PBL Media, which is struggling to pay down around A$4.1 billion in debt. Consolidated Media Holdings (CMJ.AX), controlled by Australian billionaire James Packer, owns the rest of PBL. Packer stepped down from PBL’s board last month.

CVC is considering proposals aimed at its debt issues, with one plan being a A$300 million cash infusion.

MagnaChip Semiconductor Ltd, a South Korean maker of chips for consumer electronics, tried to list publicly earlier this year. CVC and Francisco Partners bought the company for $830 million from Hynix Semiconductor (000660.KS) in 2004.

CVC has returned around 85 percent of the invested capital from that deal and retains a small stake, said the source who knows the portfolio.

MagnaChip faces increased competition and weak demand, leaving its IPO plans in question. Bonds due in 2014 for MagnaChip are at 2.5 cents to the dollar. Last month, Standard & Poor’s cut ratings on the chip maker to CCC, well below investment grade due to “severe liquidity problems.”

CVC’s Japanese restaurant chain Skylark is also under pressure. CVC, along with Nomura Principle Finance, bought the company for 270 billion yen in 2006. In August, Skylark’s president was dismissed, amid speculation that CVC and Nomura were frustrated with the company’s poor performance.

In February, CVC agreed to buy a 65 percent stake in Australian travel and hospitality company Stella Group for A$400 million from MFS Limited, with MFS keeping the remaining stake.

But the headwinds facing the hospitality industry are stiff, and troubles for MFS have gotten worse. It changed its name to Octaviar, which is currently in the hands of Australian administrators.

By Michael Flaherty
(Additional reporting by George Chen, Editing by Kim Coghill)