Entrepreneurs Cashing in to Spark Asia LBO Rise, CreditAg Says

Leveraged buyout loans in Asia are set to increase as the region’s companies mature and seek to grow by acquisition rather than organically, according to Credit Agricole SA.

Merger and acquisition activity in the Asia-Pacific region has increased by 67 percent this year to $312.4 billion, led by deals including Temasek Holdings Pte.’s part purchase of Olam International Ltd. and Oversea-Chinese Banking Corp.’s $5 billion takeover of Hong Kong’s Wing Hang Bank Ltd. The number of leveraged finance transactions completed in emerging Asia in the first three months of the year rose by 28 percent to 169 versus the same period of 2013, data from the Emerging Markets Private Equity Association show.

“In Asia, the leveraged-loan market will emerge quite significantly over the next few years,” said Olivier Carcy, the Geneva-based global head of private equity at Credit Agricole’s private banking unit. “Companies have reached a certain maturity over the last 15 years where entrepreneurs want to cash in and that will lead to more transactions.”

Some $4 billion of fresh capital was raised in emerging Asia in the first quarter led by Affinity Equity Partners Ltd.’s fourth buyout fund, which attracted $1.3 billion to reach a final close of $3.8 billion, EMPEA data show. Since European and U.S. banks scaled back their presence in the region during the global financial crisis, Asian lenders have been building their leveraged finance teams and are now ready to put capital to work, Carcy said.

Funds Closing

About 61 bank loans totaling $21.4 billion whose proceeds were used for acquisitions have been signed in the Asia-Pacific region since Dec. 31, compared with 99 facilities totaling $29.1 billion in the first five months of 2013, according to data compiled by Bloomberg.

Buyout money is also coming from more traditional players. Washington-based Carlyle Group LP, the world’s most acquisitive private equity firm with 350 transactions, is expected to raise five further funds toward the end of 2014, with two of those focused on North America, two on Asia and one on Europe, Bloomberg-compiled data show.

CVC Capital Partners Ltd. meanwhile completed raising its fourth Asia fund of about $3.5 billion earlier this month and agreed to buy a majority stake in Hong Kong-based serviced office provider The Executive Centre Ltd. on May 21.

Credit Agricole Private Banking has co-invested about $100 million in four private-equity funds with a pan-Asian focus, according to Carcy. It expects to invest another $100 million this year in Asia.

“Some people say Asia isn’t primed for leveraged buyouts because of the prevalence of family-run companies,” Carcy said. “But I think it’s just a matter of maturity. Once the financial markets develop to support leveraged buyouts then they’ll naturally emerge.”

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