I think we all know that Asia has created fabulous wealth and economic power in the past decade. But perhaps less appreciated is that the words we use to describe magnates and business leaders are taken from the region: mogul (India) and tycoon (China).
Asian tycoons are not like their Western counterparts. They tend to be very low-key. The closest most people get to them is a few short paragraphs and a mug shot in Forbes when they publish the annual wealth list.
Through my career I have worked for a few of them. On one occasion I was head of a department and was invited to join a quarterly management meeting. Seated in a boardroom walled with Chinese paintings and scrolls, I watched the door flung open and a group of up to ten aides marched in with the tycoon and his special advisor following suit. It was eerily quiet. The aides remained standing and lined up at one side, the special advisor lit a Cuban cigar and the tycoon looked around and spotted me and asked, “Who are you?” A fair question given that I was the only Caucasian in a room with 30 local people. And he was obviously fiercely protective of his privacy.
Over the next hour, this tycoon impressed everyone in the room with his detailed knowledge about operations and financials – despite this subsidiary representing a mere fraction of his business empire. And I’ve followed the activities of this tycoon, and others, ever since.
Investors and analysts are rarely given direct access to these people. That’s because real information about investing is simply not shared in Asia the way it is in the UK. But that makes them even more alluring. And right now some of the most impressive tycoons I have met in my time are investing heavily in Southeast Asia. I’d like to tell you more about that today. What I am offering is essentially a shortcut to finding great investments in Asia.
Part three of the great Asian story
Let me just give you an idea of the scale of investment I’m talking about. One Thai tycoon has just made the biggest ever foreign investment in China. Another two Asian tycoons are fighting over one of the oldest conglomerates in Singapore. Another tycoon acquired the retail chain of a leading European company in a market growing by 30% annually. I’ll tell you about each of these today.
But I want to point out that what we are witnessing here is a merger and acquisition (M&A) boom – one that is being fuelled by cheap credit, low corporate gearing and the huge promise of a rising Asean powerhouse.
In fact, I see this boom as the third instalment in the Asia story. The first was Asia reaching out to the modern global economy in the 1980-90s. The second was the export and China driven boom of the 2000s. Now we are seeing a restructuring boom. And this is a powerful story.
The restructuring will allow Asian companies to reduce their dependence on the indebted West. No doubt the Asian markets will love it. At least investors did when America had a similar M&A boom from the late 1980s to 2001.
I think to prosper from this theme we need to focus on assets that can be in a tycoon’s shopping cart in the new year. Let’s look at the opportunities here…
Four very interesting deals
Since the Asian financial crisis in 1997/98, many Asian tycoons have rebuilt massive fortunes. They’ve allowed their Western-educated children to run some of their companies and they’ve lined up advisors and bankers ready to source them ideas and capital for new ventures. Among the most eye catching deals I’ve seen recently, were:
Carrefour (Indonesia): In late November, the Indonesian tycoon Chairul Tanjung’s PT Trans Retail, a part of the CT Corp, bought 60% of PT Carrefour Indonesia, a subsidiary of French Carrefour SA, for $750m. With this acquisition his group now owns 100% of Carrefour Indonesia.
A trained dentist, Chairul Tanjung got his start selling study guides while in school. Today he has a fortune of more than $1bn thanks to the strength of his Trans Corp Media, which includes two of the nation’s top five TV stations. His CT Corp has interests in Bank Mega, theme parks, and operates Armani and Jimmy Choo franchises.
After the acquisition, the ‘Carrefour’ and ‘Trans’ brands will merge and the Indonesian shops will become ‘Trans Carrefour’. The company has an agreement to use the brand for five years, and as time goes by, the word ‘Trans’ will be bigger and ‘Carrefour’ will diminish, according to the tycoon. He anticipates that under his full ownership ‘Trans Carrefour’ will report 30% growth annually on the back of Indonesia’s strong domestic demand.
Guoco (Hong Kong): In early December, the Malaysian tycoon Quek Leng Chan offered $1.1bn to take private Hong Kong listed conglomerate Guoco Group Ltd, which has interests in property, hospitality and banking. As a 75% owner of the company, he offered to pay HK$88 a share, a 24.8% premium over Guoco’s closing price, but a 34% discount to its estimated net asset value of HK$134.32 a share. With a potentially hugely undervalued conglomerate, there is speculation that Mr Quek will use Guoco to take over Hong Kong’s Bank of East Asia Ltd (0023.HK) as the conglomerate already owns around 14%.
Apart from his stake in Guoco, Mr Quek Leng Chan controls Hong Leong Malaysia, a conglomerate that has interests in banking, insurance, stockbroking, electronics and hotels across Asia. He keeps a very low profile but is known to be an astute gambler. Interestingly, his cousin, Kwek Leng Beng, is one of the richest men in Singapore.
F&N (Singapore): Fraser and Neave (F&N), is a conglomerate with business interests ranging from property to soft drinks and publishing. It is one of the state’s oldest companies, and was founded by two British entrepreneurs in 1883. It emerged as a takeover target following the sell-off of Tiger Beer maker Asia Pacific Breweries to Dutch beer giant Heineken in September.
Two tycoons are fighting to get their hands on it. Thai beverage tycoon Charoen Sirivadhanabhakdi, through TCC Assets, has offered to pay S$8.7bn ($7.1bn) for the balance of the shares it does not own in the company.
Indonesian tycoon Mochtar Riady, the developer who controls the Lippo Group, offered S$13.1bn in mid-November. His offer for F&N is backed by Japanese brewer Kirin Holdings, which holds about 14.8% of F&N and is interested in its food and beverage business. If they succeed, the property interests of F&N will go to Overseas United Enterprises (OUE), a subsidiary which gets about 65% of its revenue from hotel operations. Mr Riady is planning to double its assets of the Singapore unit to S$10 bn ($8.1bn) in as early as three years. The battle is likely to be settled early next year, as TCC said the closing date for the F&N offer had been extended to 2 January from 11 December.
Ping An Insurance (China): In early December, the Thai tycoon Dhanin Cheravonon – Thailand’s richest man and owner of the Charoen Pokphand Group – said he would pay $9.4bn for a 15.6% stake in Ping An Insurance, the second biggest insurance company in China, from HSBC.
This is the first entry into financial services after Dhanins became the first investor in China when Deng Xiaoping opened the economy 33 years ago. Interestingly, the Ping An deal is the biggest purchase by a foreign buyer in China, according to Bloomberg.
The third instalment of the Asia story
What do these deals tell us? They signal an M&A boom. Thailand is the best example. According to BoA Merrill Lynch, the total transaction value of Thai M&A announced this year is $24.6bn, almost twice the previous record of $13.3bn (2010) and eight times larger than in any year prior to the global financial crisis in 2008.
The sector focus has changed from petrochemical, oil and gas and mining to financials, food, transport, utilities, commerce, materials and healthcare. And the majority of transactions are within Asia (80%) and ASEAN (60%).
For investors, the key implication is that Asia is turning in on itself. And there are great opportunities for investors if you can get access to a little local knowledge – say someone who has lived out here for years and is reporting back with the greatest stories every two weeks.
M&A boom copied from America
Anyway this boom is not unique. Between the late 1980s to 2001 there was an American M&A boom. This was driven by antitrust policy, the deregulation of the financial services sector, the creation of new financial instruments and markets (eg the junk bond market), as well as technological changes.
Characterised by its international nature and cross-border deals, the total value of global M&A transactions increased five times during that period compared with the previous period (1983-89). The stock market was buoyant then, and I see no reasons why Asia should be much different.
KKR, the US private equity firm, has said it sees huge opportunities for 2013 in Malaysia, Thailand, Indonesia, the Philippines and Vietnam.
How to make money from this theme?
Firstly get the direction right. When the tycoons are buying we should take notice. Many of them are ‘asset shufflers’ who don’t hesitate to sell assets when the markets are deemed overvalued. This is something investors know too well when investing in Hong Kong property developers.
Secondly, track what they like. At the moment it seems commodities are out and consumers in. Hence we should focus on stocks in that segment that they partially own or which would strategically fit. That information is not that easy to come by. But we will return with some actionable ideas for you in 2013.
Stay tuned…
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