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Look Who's Gobbling Up U.S. Assets Now (Int'l Edition)

International -- Finance: INVESTMENTS


As the Japanese back off, other Asian investors pour in cash

By late last summer, the Westin Bonaventure Hotel in downtown Los Angeles seemed doomed. Vacancy rates at the 1,368-room behemoth were soaring, and convention business was down to a trickle. After foreclosing on its $75 million mortgage in 1991, Equitable Life Assurance Society of the U.S. was hard-pressed to find an acceptable bid. Then, along came a group of Taiwanese investors. In December, after months of negotiations, the Taiwanese bagged their prize for a bargain price estimated at less than $50 million.

The rescue of the Bonaventure is just one example of the rising tide of Asian investment in the U.S. Five years after Japan's economic bubble imploded and it ceased pouring vast amounts of capital into the U.S., a flood of non-Japanese Asian money is washing onto American shores--by some estimates, more than $60 billion in 1995. Even as Western fund managers turn back to emerging markets in search of high returns (page 48), U.S. real estate, new plants, corporations, and financial instruments have become havens for Pacific Rim cash.

Political uncertainty, stoked by Hong Kong's 1997 transition to mainland rule and China's military maneuvers in the Taiwan Strait, has directed a wave of flight capital eastward. Tanking Asian real estate markets and mostly poor stock-market results in the region last year have added to the appeal of the U.S. But many see a long-term trend toward investing stateside that will outlast such temporary considerations. "Our clients are not investing because of political reasons, they're diversifying," says Eddy Chao, managing director of Los Angeles-based real estate adviser Financial Capital Investment Co.

Many Asian companies consider U.S. investments their ticket to greater market penetration in the States--and access to cutting-edge technology. That has certainly been the strategy of South Korea's powerful chaebol. Samsung Electronics Co. last August bought 40% of AST Research, a personal-computer manufacturer based in Irvine, Calif., for $378 million. The same month, LG Electronics took over majority interest in Zenith Electronics Industries for $351 million. Then there's bricks and mortar. Hyundai is planning to build a $1.3 billion chipmaking plant in Eugene, Ore. And Samsung is plunking down $1.7 billion to start up a semiconductor factory in Austin, Texas.

BARGAINS. Of total Asian inflows, the vast majority is going into portfolio investments such as stocks and bonds. The U.S. markets' outstanding performance in 1995 is one reason. Another, says May Chong, who manages $360 million for 80 Asian clients at Merrill Lynch & Co.'s Beverly Hills branch, is the proliferation of international news media, which have piqued Asian interest in global diversification.

Japan, Asia's former big spender, continues to sell its U.S. assets as its strapped financial institutions struggle to raise cash. So a healthy supply of Japanese-owned real estate will come on the market this year and next--at a fraction of what the Japanese paid. And even if demand from U.S. institutional investors pushes prices beyond the bargain-hunters' means, non-Japanese Asians are likely to be active in the market. In the past 12 months, real estate moguls from Taiwan and Hong Kong have come to dominate the Los Angeles commercial property market.

Are such investors doomed to repeat Japan's mistakes of the 1980s? Eyebrows twitched last year when Cheil Foods & Chemicals Inc., a former Samsung affiliate, shelled out $300 million for an 11% stake in Hollywood's newest and hippest studio, DreamWorks SKG. "Koreans have often followed the Japanese in their investment practices," admits Stewart M. Kim, who heads investment advisers Pacific Gemini Partners in Los Angeles. A number of Korean investments in the U.S. have been disappointing so far, but L.A. trophies like the Bonaventure or DreamWorks could prove different. Even if they do seem to be exceptions, the new wave of Asian money is sure to swell.BY NANETTE BYRNES IN LOS ANGELES, WITH LAXMI NAKARMI IN SEOULReturn to top

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