TPG Sees Taiwan as China Springboard

TAIPEI, May 6 (Reuters) – Private equity firm TPG Capital [TPG.UL] said on Tuesday it hopes to use Taiwan as a base to buy into Chinese firms, in what could be a model for others ahead of expected rule relaxations under a new president.

Global private equity firms, including TPG, Newbridge [NB.UL] and Carlyle Group [CYL.UL], have shown intense interest in Taiwan recently, seeing the market as undervalued compared with more high-profile Asian peers such as China.

Many multinationals once also looked at Taiwan, with its strong infrastructure and labour force educated in Western business practices, as a platform for investment in China.

But that vision has gone largely unrealized, with many companies now going directly to China, due in part to many restrictions on Taiwan companies doing business in China, a political rival despite close economic ties.

Many believe some of those restrictions could soon be relaxed under the administration of President-elect Ma Ying-jeou, who favours closer business ties with China. He takes office this month after winning a landslide victory in the March 22 election.

“With Taiwan likely opening up more to China, we can use Taiwan companies as a platform to acquire Chinese companies,” said TPG Capital partner Paul Chen at an industry event attended by hundreds of private equity representatives.

“That could be very appealing for us,” he said.

Ma and his China-friendly Kuomintang Party (KMT) have promised to lift a ban that prohibits local companies from putting more than 40 percent of their net assets in the mainland. 

Many firms also hope the Ma government will lift other restrictions, such as ones that prohibit the transfer of some advanced technologies and limit China investments by Taiwanese financial services firms.

China has claimed self-ruled Taiwan as its territory since the end of the Chinese civil war in 1949 and pledged to bring the island under its rule, by force if necessary.

Despite political tensions, however, cultural ties across the Taiwan Strait make the island a good offshore platform for investment in China, said Jim Chang, president of AIG's (AIG.N: Quote, Profile, Research) fund arm in Taiwan.

“That could become a trend,” he said. “Compared with people in Hong Kong or Singapore, Taiwanese are widely regarded as having more in common with Chinese in terms of management and the way of thinking.”

China has become the favourite overseas destination for Taiwan firms, which have pumped up to $100 billion into their mainland investments over the last two decades. China is also Taiwan's top trading partner.

Other private equity players active in Taiwan include Kohlberg Kravis Roberts [KKR.UL], MBK Partners and Longreach Group.

By Faith Hung