Asia’s Private Equity News Source avcj.com November 12 2013 Volume 26 Number 43

focus2013 AVcJ AWARDs

Emergency repairsGPs are eyeing distress opportunities in Asia, but can they capitalize? Page 8

AVCJ award winnersKKR, MBK Partners, CVC take top prizes Page 6

Movies on the moveVCs plot the future of China online video Page 11

Kedaara closes debut India fund at $540m

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Armstrong raises $164m for SE Asia cleantech fund

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pRofile

funDs

Data file Page 15

Helion Venture Partners’ Sanjeev Aggarwal

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Please vote in the 2013 AVCJ India Awards

Page 3

Carlyle, CHAMP PE, Exhilway, Globis, Headland, Hopu, H&Q Korea, IDFC, Innovation Works, Jiuding, KIC, OTPP, Polaris, Temasek

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eDitoR’s VieWpoint

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AVcJ ReseARcH

AssociAte your brAnd with excellence: If you would like to be associated with recognising and rewarding excellence in the Indian private equity industry, award sponsorship opportunities are available. Please contact samuel lau on +852 3411 4963 or samuel.lau@incisivemedia.com

Members of Asia’s PE community have until november 22 to cast

their votes for the leading fundraises, investments, exits firms and

individuals over the last 12 months.

cast your vote now at www.avcjindia.com/2013-avcj-india-awards. You can see

details of the nominees and why they have been shortlisted.

The winners will be announced at a gala dinner in Mumbai on december 5 as part of the AVCJ India Forum.

India Award categories

Firm of the year Private equity Professional of the year exit of the year Private equity deal of the year Venture capital deal of the year india Fundraising of the year

AVCJ Indian Private Equity & Venture Capital Awards 2013

Sponsored by

Recognising excellence in indian PRivate equity

The shortlists are now available until November 22

Vote now!

India13_awards_adV_1211.indd 1 13/11/2013 10:22 AM

Number 43 | Volume 26 | November 12 2013 | avcj.com 3

eDitoR’s VieWpointtim.burroughs@incisivemedia.com

Voting has opened for the 2013 aVCJ Indian Private Equity & Venture Capital Awards. The region’s private equity community has until November 22 to pay tribute to the leading fundraising, investments, exits, individuals and firms of the past 12 months.

Votes are cast via the awards website (www.asianfn.com/voteind.asp). Full details of the process, rules and past winners can be found at the awards website (http://www.avcjindia.com/static/2013-avcj-india-awards). No more than 10 votes will be accepted from employees of a single firm. The public has a 50% say in the result, with an industry judging panel and the AVCJ Editorial Board each accounting for 25%.

Based in part on recommendations submitted by the private equity community, the AVCJ Editorial Board drew up nominee shortlists in consultation with the judging panel.

The nominees in each category are as follows:

FUNDRAISING OF THE YEAR• AavishkaarIndiaII(AavishkaarVentureManagement)

• IndiaInfrastructureFundII(IDFCAlternatives)

• KedaaraCapitalI(KedaaraCapital)• IndiaBusinessExcellenceFundII(MotilalOswalPrivateEquity)

• TataOpportunitiesFund(TataCapital)

VENTURE CAPITAL DEAL OF THE YEAR• Babyoye&Hoopos(TigerGlobal/HelionVenturePartners/AccelPartners)

• FlipkartOnlineServices(Naspers/TigerGlobal/AccelPartners/IconiqCapital/MorganStanley/Sofina/DragoneerInvestmentGroup/VulcanCapital)

• NxtGenDataCenter&CloudServices(IntelCapital)

• SimplilearnSolutions(HelionVenturePartners/KalaariCapital)

• Snapdeal(eBay/IntelCapital/BVP/NexusVenturePartners/ru-Net/KalaariCapital/SaamaCapital)

PRIVATE EQUITY DEAL OF THE YEAR• AllianceTireGroup(KKR)• CavinKare(ChrysCapitalPartners)• CSS(PartnersGroup)• HexawareTechnologies(BaringPrivateEquityAsia)

• PVR(LCapitalAsia/MultiplesAlternativeAssetManagement)

EXIT OF THE YEAR• ApolloHospitals(ApaxPartners)• BushFoodsOverseas(StandardChartered

PrivateEquity)• JustDial(EGCS/SAIFPartners/SAPVentures/SequoiaCapital/TemasekHoldings/TigerGlobal)

• PilaniSoftLabs/redBus(HelionVenturePartners/InventusCapitalPartners/Seedfund)

• ShriramTransportFinance(TPGCapital)

PRIVATE EQUITY PROFESSIONAL OF THE YEAR• JimmyMahtani(BaringPrivateEquityAsia)• M.K.Sinha(IDFCAlternatives)• RenukaRamnath(MultiplesAlternativeAssetManagement)

• RaviAdusumalli(SAIFPartners)• VishalMahadevia(WarburgPincus)

FIRM OF THE YEAR • BaringPrivateEquityAsia• HelionVenturePartners• IDFCAlternatives• MotilalOswalPrivateEquity• SAIFPartners

The winners will be announced at a gala dinner in Mumbai on December 5, during the AVCJ India Forum, which runs from December 5 to December 6. A roundup of the evening will appear in the following week’s issue of the Asian Venture Capital Journal, released on December 10.

Tim BurroughsManaging EditorAsian Venture Capital Journal

Voting opens for the India Awards

Managing Editor Tim Burroughs (852) 3411 4909

Staff Writers Andrew Woodman (852) 3411 4852 Mirzaan Jamwal (852) 3411 4821

Winnie Liu (852) 3411 4907

Creative Director Dicky Tang Designers

Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow

Senior Research Manager Helen Lee

Research Manager Alfred Lam

Research Associates Herbert Yum, Isas Chu, Jason Chong, Kaho Mak

Circulation Manager Sally Yip

Circulation Administrator Prudence Lau

Manager, Delegate Sales Pauline Chen

Director, Business Development Darryl Mag

Manager, Business Development Anil Nathani, Samuel Lau

Sales Coordinator Debbie Koo

Conference Managers Jonathon Cohen, Sarah Doyle,

Zachary Reff Conference Administrator

Amelie Poon Conference Coordinator

Fiona Keung, Jovial Chung

Publishing Director Allen Lee

Managing Director Jonathon Whiteley

The Publisher reserves all rights herein. Reproduction in whole or in part is permitted only with the written consent of

AVCJ Group Limited. ISSN 1817-1648 Copyright © 2013

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avcj.com | November 12 2013 | Volume 26 | Number 434

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CHAMP-owned Accolade to acquire NZ wine brandsAccolade Wines, a winemaker owned by Australia’s CHAMP Private Equity, has agreed to acquire a portfolio of wine brands from New Zealand counterpart Mud House Wine Group. The deal helps build upon Accolade’s existing portfolio of New Zealand wines while enabling the company to expand its distribution in Asia, Europe, the US.

KPMG’s Australia PE head switches to singapore roleAndrew Thompson, head of private equity at KPMG Australia, is relocating to Singapore where he will take up a Southeast Asia-focused position with the firm. Thompson is joining the KPMG Singapore partnership with immediate effect. He will assist private equity and other investors as they develop their businesses across Southeast Asia.

GrEAtEr CHiNA

OtPP increases investment in Macau casino developer Ontario Teachers’ Pension Plan (OTPP) has invested HK$299.9 million ($38.7 million) in Macau casino and hotel developer Louis XIII Holdings through a zero-coupon convertible bond issue. This is the Canadian pension plan’s second commitment to the project, following a subscription to HK$1 billion in convertible bonds issued by Louis XIII subsidiary Paul Y Engineering in January.

Jiuding reaches first close on latest rMB fund China’s Jiuding Capital has reached a first close of RMB1 billion ($164 million) on its latest renminbi-denominated vehicle, which has a full target of up to RMB3 billion. Jiuding Strategic Fund, which has already commenced investment, is expected to hold a final close by the end of this year. The fund received about 80% of commitments from institutional investors.

Google launches incubation program in Hong Kong Google has partnered with The Chinese University of Hong Kong (CUHK) to launch a one-

year incubation program to help students and young entrepreneurs in Hong Kong build their own businesses. An incubation and mentorship program will look to give entrepreneurs access to mentors that can often be hard to reach in Hong Kong.

innovation Works backs Chinese it job website Innovation Works has committed RMB2.5 million ($410,000) to IT job listing website Neitui. Neitui has around 20,000 registered users and more than 1,700 job seekers have posted their resumes. It lists jobs from some of China’s biggest tech companies, including Tencent, Alibaba, Sina and Baidu and receives about 4,000 to 5,000 unique views per day.

Baidu to invest in VC-backed DigioneChinese search engine giant Baidu has invested in Digione, a Shenzhen-based handset manufacturer. Financial terms were not disclosed. According to AVCJ Research, Shenzhen Capital Group and Zheshang Venture Capital participated in a Series A round of funding to Digione two years ago. The investment will integrate the Baidu Cloud platform and handset manufacturing operations.

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Carlyle set for partial exit from Japan’s ChimneyThe Carlyle Group is set to reap up to JPY14.3 billion ($145 million) through another partial exit from Japanese casual restaurant chain Chimney Corp, after agreeing to subscribe to a tender offer by liquor retailer Yamaya Corp. to acquire a 48.66% stake. The PE firm will sell 9.5 million shares with the top of book price is set at JPY1,510 a share.

Polaris exits Nippon Oil Pump to WendelJapanese buyout firm Polaris Capital Group has agreed to exit its entire share in Nippon Oil Pump Group (NOP) - a maker of hydraulic pumps and motors - to French listed investment group Wendel. NOP, which was founded 1919, develops hydraulic pumps and motors. It claims to have a domestic market share of more than 90% as well as a substantial share of the global market for trochoid pumps.

KiC President Chong-suk Choi resignsKorea Investment Corp’s (KIC) president and CEO, Chong-Suk Choi, has resigned for personal reasons. A research is underway for a replacement, with Dong-Ik Lee, the sovereign

temasek, Hopu join $213m China dairy investmentTemasek Holdings, Hopu Investment Management and three other investors will buy a 13.24% stake in Yashili International from China Mengniu Dairy for HK$1.6 billion ($213 million). Mengniu – which bought a controlling stake in Yashili earlier this year – is making the sale so that the company meets the minimum public float percentage required by the Hong Kong Stock Exchange.

The investors will acquire 471.1 million shares in Yashili at HK$3.50 apiece. Temasek-controlled Dunearn Investments is paying HK$770.8 million for a 6.19% stake, while Hopu-owned VITEL Group will take a 4.98% interest for HK$620.9 million. The three other investors - Diverse Profits, Lead Rich International and Wincon Capital Investment - will own 2.07% between them. Once the transaction is completed, Mengniu will hold a 76.58% stake in Yashili, down from 89.82%. It will use the proceeds to pay down debt tied to its acquisition of Yashili.

Mengniu initially bought a 75.3% stake in the company from majority shareholder the Zhang family and The Carlyle Group in June. The private equity firm received approximately HK$3 billion for its 24% holding. Carlyle bought 17.3% of Yashili in September 2009 for $95.15 million and increased its stake when the company went public in Hong Kong in 2010.

This was one of several private equity investments in China’s dairy industry in the wake of the 2008 melamine scandal where tainted milk products cost the lives of six infants. In 2009, Hopu invested in Mengniu, buying a 20% stake alongside state-owned grain trader COFCO Group for HK$6.12 billion.

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wealth fund’s CIO, to serve as president in the interim. Choi was appointed for a three-year term at KIC in July 2011. He pledged to boost the sovereign wealth fund’s exposure to alternative investments such as private equity and commodities.

Globis, intel-backed V-Cube files for tokyo iPOV-Cube,a Japanese developer of web-conferencing and webinar systems backed by Intel Capital and Globis Capital Partners, has filed for its Tokyo IPO. The company plans to sell 1.16 million shares, including 600,000 new shares, when it lists on the MOTHERS (market of the high-growth and emerging stocks) section of the Tokyo stock exchange next month. Intel and Globis own 15.07% and 13.16% of the company, respectively.

H&Q invests $90m Monster-owned JobKoreaH&Q Korea has agreed to buy a 49.9% interest in JobKorea, the South Korean operation of Monster Worldwide, for an aggregate purchase price of $90 million. Monster will retain management control of the business, with H&Q supporting regional expansion efforts. Founded in 1996, JobKorea was an early mover in the country’s online recruitment advertising space and was acquired by Monster in 2005. The company has 11 million registered users and 2.8 million listed companies.

Blackpeak adds to Japan teamBlackpeak Group, an Asia-focused strategic advisor to corporate and investment clients, has appointed Kohtaro Miyagi as a senior consultant, based in Tokyo. Miyagi recently retired from Canon Group where he spent most of his career. The firm has further strengthened its presence in Tokyo with the appointment of risk consultant Hsiang-Chien Hsu, who will also contribute to the Asian cross-border business practice.

Alvarez & Marsal opens Korea officeTurnaround management and business advisory specialist Alvarez & Marsal (A&M) has opened an office in Seoul and appointed Jay Kim as managing director to lead its business activities in South Korea. Kim’s previous experience in private equity includes stints at PineBridge Investments and The Riverside Company, heading up Korea operations for the latter.

sOutH AsiA

iDFC buys stake in india commodities exchangeIDFC Alternatives has acquired a 5% stake in National Commodity and Derivatives Exchange (NCDEX), India’s largest agricultural commodity

derivatives exchange, from Jaypee Financial Services for INR456 million ($7.3 million). Delhi-based brokerage Jaypee reduced its stake in NCDEX from 22.38% to 7.68%, with IDFC, Oman India Joint Investment Fund and Build India Capital Advisors were the buyers.

Exhilway to invest $1b in india Exhilway Global, a US-based hedge fund and emerging markets private equity GP, is looking to invest $1 billion in India as it prepares to launch its Exhilway Global Opportunities Fund (EGO) next month - targeting $2 billion. The firm claims that EGO is the first-ever hybrid private equity fund, giving investors a minimum debt return plus unlimited potential to make money over the equity pledged by the promoters of the investee companies.

Xander-backed KidZania to invest in theme parksAn Indian franchisee of KidZania, a kids indoor theme park chain backed by Xander Group, is looking to open as many a five theme parks in the country, investing up to $75 million. Imagination Edutainment India - which has just opened its first KidZania theme park in Mumbai - is a joint venture between Singapore-based KidZ Inc. and Bollywood actor Shah Rukh Khan. They own 74% and 26%, respectively. KidZ Inc. is owned by Xander Group, Comcraft Group and Maxfield Management.

Elephant Capital in Mahindra Forgings exitElephant Capital has sold nearly two-thirds of its 2.45% stake in Mahindra Forgings, an Indian forging manufacturer, to Spain’s auto parts supplier CIE Automotive for INR141 million ($2.3 million). The London-listed PE firm has sold 1.74 million shares - or 1.78% of its holding - at INR81 apiece, representing a premium of 21.2% to the June 15 closing price.

Velti sells mobile marketing assets to GsOMobile marketing and advertising technology provider Velti is to sell its Air2Web India, UK-based Mobile Interactive Group and Velti DR and US-based businesses to GSO Capital Partners, the credit division of Blackstone. GSO has committed $25 million in debtor-in-possession financing, including a $10 million cash injection to support the operations included in the proposed sale. It will also assume $50 million of debt from HSBC.

Headland launches $357m Kreuz takeover offerHeadland Capital Partners has launched a takeover offer for Singapore-listed Kreuz Holdings, a subsea services provider to the offshore oil and gas industry. Under the terms of the proposed agreement, all outstanding shares of Kreuz will be sold to SEA9 - a subsidiary of the $1.38 billion Headland Private Equity Fund 6 - at S$0.80 piece, valuing the company at S$445m ($357m). The share price represents a premium of 11.1% and 39.6% above the 6-months and 12-months volume weighted average prices respectively of Kreuz Shares to November 1.

Kruez listed on the Singapore exchange in 2010. Its subsea services include supporting new offshore installation and construction projects, as well as inspection, repair and maintenance

of existing offshore production and pipeline facilities. The capital raised will allow Kreuz to buy new vessels and grow its business.

“The transaction represents an attractive and exciting opportunity for SEA9 to invest in a focused subsea services provider. Headland and SEA9 are well positioned to partner with Kreuz to provide resources and strategic input to assist the Company in pursuing future growth initiatives,” said Paul Kang, a senior partner of Headland.

Headland is currently an investor in Miclyn Offshore Express, a company which provides service vessels to the expanding offshore oil and gas industry across South East Asia, Australia and the Middle East, alongside CHAMP Private Equity. The two PE firms made an offer to complete a full acquisition of the company in September.

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AsiA AWARDsAVCJeditorial@incisivemedia.com

KKr was named Firm of the Year and also took the prizes for fundraising and Deal of the Year at the 2013 AVCJ Private Equity & Venture Capital Awards, while MBK Partners’ Michael B. Kim picked up the Private Equity Professional of the Year honor and Headland Capital Partners won the inaugural Operational Value Add Award.

KKR’s clutch of prizes came on the back of a remarkable 12 months during which the firm has closed its second pan-Asia fund at $6 billion, made two significant exits from China Modern Dairy and Japan’s Intelligence Holdings, and announced investments of more than $1.8 billion. Those deals include a $1.67 billion investment in Japan’s Panasonic Healthcare, which was singled out for the PE Deal of the Year prize.

Accepting the Firm of the Year Award, Joe Bae, head of KKR Asia, acknowledged the contribution of a regional team that has grown to 120 people over the last eight years. “I think many of our LPs are surprised when they see our business in Asia is the same size people-wise as our business in the US,” he said. “That is an incredible testament in terms of the passion we feel about the opportunity set here in Asia, the future we think this industry has, and our commitment to this part of the world.”

The Operational Value Add Award, presented for the first time this year, is one of only two categories not open to a public vote – the level of supporting documentation required makes wide circulation impractical so it decided by a panel of industry judges in collaboration with the AVCJ Editorial Board. The winner was Headland Capital Partners for its work with Chinese grocery chain Yonghui Superstores, a portfolio company since 2008.

“We have been very fortunate as a firm to have backed an incredible management team,” said Marcus Thompson, Headland’s CEO, who also paid tribute to the role played by Senior Partner William Shen. “When we made the investment back in 2007 the company was operating in just two provinces in China and six years on we are now in more than 12 provinces and we have quintupled the number of stores.”

CVC won Exit of the Year for Indonesia’s Matahari Department Store, while Kim won PE Professional of the Year in recognition of MBK closing its third fund at $2.7 billion and sealing three of the region’s largest private equity buyouts of the past year. The parallel venture capital award went to Richard Liu of Morningside Technologies, who said he saw the prize as reward for consistency, having spent his entire 14 years in early-stage investing with the same firm.

The prize for VC Deal of the Year went to Chinese online vacation homes rental service Tujia, which received a Series B round of funding earlier this year from Lightspeed China, CDH Investments, Qiming Venture Partners, GGV Capital and two strategic investors. James Mi of Lightspeed China – the firm that led Tujia’s Series A round – picked up the award.

The final prize of the evening, given at the discretion of the AVCJ Editorial Board, was the AVCJ Special Achievement Award. It went to Wu Shangzhi, who led the team that spun out from China International Capital Corp. in 2001 to form CDH Investments.

“Dr. Wu has created a firm where we truly are trying to be an institution. It’s not about one individual,” said Stuart Schonberger, managing director of CDH, accepting the award on Wu’s behalf. “We set up a small firm with $100 million and four LPs backing us. Today we have relationships with more than 100 LPs and $8 billion under management. But the six original partners are still together.”

KKR scoops three prizes at AVCJ Awards13th AVCJ Asia Awards: KKR wins Firm of the Year, Deal of the Year and Fundraising of the Year; MBK’s Michael B. Kim named PE Professional of the Year; Headland takes Operational Value Add Award

Headland Capital Partners’ William Shen (left) and Marcus Thompson (right) receive the Operational Value Add Award from James Lee of SAP

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AsiA AWARDsAVCJeditorial@incisivemedia.com

Joe Bae, head of KKR Asia, accepts the Firm of the Year Award. KKR also won the prizes for Fundraising of the Year and Deal of the Year

CVC Capital Partners’ Roy Kuan (right) receives the Exit of the Year Award from Rick Glover of RCA

Richard Liu receives the Venture Capital Professional of the Year Award from Baker & McKenzie’s Dorothea Koo

James Mi of Lightspeed China with

the Venture Capital Deal of the Year Award

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coVeR stoRywinnie.liu@incisivemedia.com

from Japanese eleCtroniCs to Chinese cleantech to pan-regional shipping, expectations are rife that the trickle of corporate distress in Asia will turn into a flood. With some of the region’s largest economies expanding at their slowest pace in years, corporate profits are hurting and rescue might only come in the form of restructuring.

“Given the economic climate in Asia, we foresee an increasing number of corporate defaults in the next 6-12 months and a corresponding spike in restructurings,” Mark Austen, CEO of the Asia Securities Industry & Financial Markets Association, told a conference last week.

Global investors are also chasing the trend. Of the 58 distress-focused private equity currently in the market seeking $37.9 billion between them, six are in Asia, according to Preqin. Their fundraising target of $5.4 billion is less than the $6.5 billion committed to eight vehicles last year, but far ahead of the $1.8 billion raised – also by six funds – in 2011.

AVCJ Research, meanwhile, breaks the numbers down by geography: 20 domestic and global vehicles are currently raising capital with a focus in Japan, targeting up to $493 million; India ranks the second with one fund seeking $325 million, while third-placed China has two vehicles chasing $251 million.

For all that these numbers suggest the next wave of restructuring in Asia is highly-anticipated, some industry participants are skeptical as to how big the opportunity really is and how easily it can be accessed by traditional private equity investors, particularly in countries like China, where government policy plays a significant role.

“There may be many potential restructuring opportunities in China as companies face increasing financial stress. However, opportunities involving larger companies are politically sensitive, and are therefore more likely to be handled by local government and state-owned banks,” says Tim Gardner, a Hong Kong-based partner at Latham & Watkins.

Even when moving further down the scale to situations that pass beneath the government’s radar, there remains the possibility that local players will be better positioned to act. “It is

difficult to determine the size of the addressable market, as well as the potential opportunity for international and regional private equity funds,” Gardner concludes.

Sinking sunSuntech Power, once the world’s largest solar-panel maker, defaulted on a $541 million offshore convertible bond in March, but investors’ ability to enforce and take ownership of the assets was called into question as Chinese creditors forced

the company to file for bankruptcy protection locally. It appeared that the domestic banks to whom Suntech owed $2.3 billion would be satisfied first.

Six months on, the situation was still unresolved and China’s relatively recent Bankruptcy Law had yet to be put to a very public test.

However, in November Suntech received a lifeline as the municipal government of Wuxi, where the company’s Chinese subsidiary is headquartered, agreed to provide a $150 million bail out. This thwarted a preliminary deal signed by Shunfeng Phtovoltaic International, a Hong

Kong-listed solar-cell manufacturer controlled by businessman Kin-Ming Cheng, to buy Suntech’s Chinese assets out of bankruptcy for $492 million.

It makes for an instructive example. Given slowing economic growth and credit becoming tighter across Asia, there should be distress situations among private enterprises, particularly small and medium-sized enterprises in emerging markets which typically struggle to source bank financing. Suntech is one of the more high-profile of thousands of cases in which local governments leverage their influence over banks to keep toxic businesses breathing.

A key consideration for the distressed specialists in this respect is the relatively immaturity of the markets in which they are operating. The US loan market is well-leveraged and bankruptcy laws are clearly clarified; by contrast, numerous Asian jurisdictions are still coming to terms with bankruptcy legislation, so taking advantage of a domestic bond default is difficult.

“Distress is really dependent on government policy. If the government wants to sell the distressed debt to foreigners, then they - the debt specialists - have a chance,” observes a senior industry professional in the distress space. “If the government discourages foreign investors, it means there is less opportunity. It is pretty black and white”.

The China angleShoreline Capital, a China-focused special situations investor, is more positive about the prospects for China, specifically the willingness of domestic banks to sell of their non-performing loans (NPLs). The private equity firm closed its second fund at $303 million in March and has already invested almost 75% of the corpus.

“The flow of special situations opportunities has been increasing in the last few years as China’s economy decelerates and some companies continue to have difficulty obtaining credit from banks. We are also seeing banks beginning to auction their NPLs. The NPL opportunity is still small but clearly growing,” says says Benjamin Fanger, Shoreline’s founder.

Rather than structure deals offshore, Shoreline structures investments with a view to securing control of onshore collateral, which could come

Playing doctorAsia appears to be destined for a spate of corporate restructurings. Although they are studying a wealth of potential investments, distress specialists say the obvious targets are not always the most accessible

“There may be many potential restructuring opportunities in China as companies face increasing financial stress. However, opportunities involving larger companies are politically sensitive and therefore more likely to be handled by local government and state-owned banks” – Tim Gardner

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in the form of property, commodities or holdings of listed equities that can be liquidated. In this context, Fanger sees two types of the special situation opportunities in China beyond NPLs: providing structured finance to stable companies that don’t want to raise equity; and putting together rescue packages or bridge capital for firms in deeper distress.

Other industry participants highlight a third possibility – tapping government debt. In recent months, local authorities in China are said to have set up asset management corporations (AMCs) to handle debts run up by local government investment vehicles. These corporations operate as subsidiaries of the big four AMCs – Cinda, Huarong, Oriental and Great Wall – that were originally set up to dispose of NPLs held by the major state-owned banks.

Distress specialists see a significant amount of stressed debt in this space, although there is also a high level of risk because the underlying assets tend not to be companies but rather infrastructure projects, where the local government has run out of cash in part due to central government policies.

“Historically, credit investors in China have looked at companies, not necessarily local government debt. It’s still at an early stage of development so I’m not sure about the scale of the opportunity, but how do you do the due diligence on the local government debt?,” asks Ivo Naumann, Shanghai-based managing director of advisory firms AlixPartners.

The same concerns about overseas investors foreclosing on onshore assets where there is a strong local government interest still apply.

Alternative sourcesRegardless of the target country, credit specialists argue that good restructuring transactions across Asia are actually more sector-driven.

“If you look at the natural resources space, the dramatic decline of earnings to natural resource businesses whether they are in China, Indonesia or Australia, are really interesting,” says Rob Petty, CEO and co-founder of Clearwater Capital Partners.

However, the most compelling opportunity Petty sees is still the direct lending space, particularly in China where SMEs contribute more than 60% of GDP and are responsible for 80% of employment but rely on banks for just 4% of their financing needs, instead resorting to the “shadow banking” system.

One industry participant who spoke to AVCJ agreed with the premise of the opportunity set: entrepreneurs are still reluctant to give up equity but they are becoming more willing to borrow and pay a higher yield. However, he stressed that private lending is a niche part of the market and

is unlikely to become a significant part because the risks are quite high.

Legal and regulatory frameworks are again the primary risk factor. While first-tier markets like Japan, Hong Kong and Singapore offer comfort, Thailand, the Philippines and Indonesia are generally described as less transparent.

One way to mitigate this risk is to evaluate banks’ credit lending and respond accordingly, although Asian lenders’ credit performance is rated relatively strong, which suggests fewer opportunities for credit-originated funds compared to Europe, for example.

“Time will tell as to how big the opportunity is in Asia, but clearly credit-originated funds need to be here in the market today and position themselves because it takes time for investors to get to know the market, particularly the late-

investment teams,” Lindsay Chu, head of Asia Pacific financial sponsors at HSBC.

Their presence also inspires other traditional PE investors to expand platforms in the alternative space, offering more flexibility in their solutions. The expectation is there will be a combination strategies covering PE, real estate and credit funds as special situation funds – indeed, several of the global and large regional players have already adopted this approach.

“Private equity is an important strategy, but there is a need clearly from companies and investors for different types of investment profile,” Chu adds. “Investors are looking for different types of investment risks and investment horizons. The fact that these large credit funds are being set up indicates there is an appetite for this type of strategy.”

coVeR stoRywinnie.liu@incisivemedia.com

entrepreneurs: willing to sell? When an Asian company requires restructuring to overcome operational difficulties, one of

the most pressing questions is this: Is the founder-entrepreneur willing to sell a majority stake to a private equity investor in order to facilitate the transition?

In many parts of the region, entrepreneurs are loath to give up equity in the business they have built from scratch to a third-party investor; a debt-based product, which can be paid down over time, is eminently preferable. Attitudes, however, are changing, says Tim Gardner, a Hong Kong-based partner with Latham & Watkins. More founders are thinking about succession planning and they also have a greater appreciation of the value private equity can bring.

“There will always be entrepreneurs who are open to private equity investors. In addition to the other benefits, they may want to have an internationally recognized institutional investor in their capital structure, which they can leverage when they conduct a trade sale or an IPO,” Gardner says.

Moreover, a combination of macroeconomic pressures and intensifying domestic and international competition is pushing entrepreneurs to seek help from private equity firms to revive businesses that are stagnating.

In China, for example, many companies that rose to prominence in a hyper-growth environment are now coming to terms with a more sober reality of rising costs and narrowing margins, where their lack of professional management skills can be brutally exposed.

Even from a pure capital-raising perspective, the IPO market that once made entrepreneurs rich without having to relinquish control of their businesses, is less accommodating. When the current ban on domestic listings is lifted, the market is likely to be more selective in the firms it favors. Selling a majority stake to a private equity investor might be the only option for an entrepreneur in need.

Secondly, in several industries over-capacity issues are rising. Ivo Naumann, managing director at AlixPartners, cites automotives as an industry ripe for consolidation. Car manufacturers have been churning out so many vehicles they are now struggling to sell them. Regardless of the fact that purchases are growing at 8% a year, overcapacity is a problem. The steel and solar industries are in a similar predicament.

“All of these factors are at work in China right now. It opens up a number of opportunities for private equity investors,” Naumann says. “They can invest at more reasonable valuations, taking control of some companies they couldn’t before. That comes together with the reality of a difficult domestic IPO market.”

He adds a kicker to the argument, though: buying majority of a company is not influence a restructuring process. A private equity firm with a minority interest that manages to negotiate preferential rights and power of veto over senior appointments or quite simply identifies the right kind of entrepreneur at the right time, could still effectively control the destiny of its investment.

To understand how AVCJ Research can help you with your data needs, please call: 852-34114956 or email AVCJResearch@incisivemedia.com

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Number 43 | Volume 26 | November 12 2013 | avcj.com 11

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China’s online Video industry is going through a consolidation phase. “It’s more of an efficiency play now,” says J.P. Gan, managing partner at Qiming Venture Partners, as the bigger players compete for content and more users.

Last year the two leading online video sites, Youku and Tudou, merged to beat increasing costs for internet bandwidth, content and mobile video services. In May this year search engine Baidu agreed to pay $370 million for PPStream, which has raised capital from Qiming, Ceyuan Ventures and Vision Knight Capital.

Baidu will combine PPS’ online video business with its existing online television and movie portal iQiyi. While iQiyi is web-based, PPS uses a cloud system better suited to mobile penetration.

David Wei, chairman at Vision Knight, says web-based sites are easier to promote but there is no stickiness because users can find videos via a search engine. Mobile apps, on the other hand, enjoy higher customer loyalty as users do not hop from video player to another as much.

It is in the latter area that VCs are most active – even though many are now looking to exit online video rather than make fresh investments.

“There is still a lot of potential innovation both in technology as well as in business models related to video,” says Qiming’s Gan. He adds that video aggregation and sharing apps similar to Vine and Snapchat are two mobile trends his firm is interested in.

Moving to mobileAccording to iResearch, Youku Tudou had over 14 million unique users per day in June to iQiyi’s 7.9 million and PPS’ 6 million. Most online video companies rely on advertising for revenues and in the last 12 months, mobile ad revenue has more than quadrupled, according to David Yuan, partner and head of Redpoint China. It stood at RMB5.52 billion ($906 million) in 2012.

Yuan expects mobile ad revenue to grow from the current a low single-digit percentage of overall digital advertising spend in China – estimated to be RMB75.31 billion in 2012 – to at least 20% in the next three years.

For this reason Redpoint has targeted advertising technology companies, including big data specialist Miaozhen Systems and mobile in-app ad network Domob. It is part of a broader investment thesis based on mobile services

outperforming online offerings in the long term.“Looking at the existing online desktop video

space, it is clear that content cost is increasingly going to be a heavier burden for online video operators and content providers,” says Yuan.

Online video companies in China have yet to turn profitable, as the costs of acquiring content, marketing and bandwidth eat up revenues. Youku and PPS have spent more than RMB200 million to secure the web broadcast rights to a single show. Sohu’s video service spent more than RMB30 million on the web broadcast rights to 30 episodes of “Ups and Downs,” a serial drama. A single episode cost RMB1 million but could be bought for RMB10,000 three years before.

So Redpoint chose to focus on user-generated content with an investment in advertising-supported video app developer Yixia. The start-up makes Miaopai, a Vine-like app that

allows users to shoot 10 second video clips and share them on the Sina Weibo microblog.

“Social type apps are probably the only area within video where there is opportunity for VC,” says Michael Clendenin, founder and managing director of consultancy RedTech Advisors.

Swimming with sharksBut investors will have to compete with big online video players such who already have scale and can create something on mobile that is more UGC generated. Last year Youku launched a news-oriented app called Youku Paike to let users

submit reports about events across the country. Tencent, meanwhile, has developed a video app called WeShow to complement the likes of Tencent Weibo and social networking site QZone.

“Unless the start-ups build a sufficient user base in a short period of time, they are not going to be able to withstand the copycats that come in and start doing the same thing,” Clendenin continues. “Another way of doing it is to get a strategic investment from one of the mainstream players and that will help to protect them.”

Yixia has used the second strategy. Sina and the start-up have a co-branded app called Sina Paike, and in September Sina led a $25 million Series B round in Yixia, alongside existing investors Redpoint and Morningside Technologies. “The collaboration with Sina Weibo has helped Yixia grow. It has a strong distribution channel and its content can be distributed across

the Sina user population,” says Yuan.While a potential problem with VC investment

in smaller apps is that VCs may invest and get it off the ground, and a strategic will come in and copy it instead of buying it, Yuan is more upbeat on the strategics’ role.

“These are large platforms, each with more than 300 million active users and market caps of over $10 billion so they have war chests,” he says. “We now have more exit opportunities since we are not only dependant on IPOs but also have acquisition opportunities by these large platforms.”

Big fish, small fishAs Chinese online video consumers switch to mobile platforms, venture capital investors are looking for ways to ride the wave – but they must do it with one eye on strategic players also entering the space

Online video on PC vs. mobile, mid 2012 - 2013

Source: iResearch China

Aug Sept Oct Nov Dec Jan Feb Mar Apr May

PC Mobile

100

80

60

40

20

0

%

avcjausnz.com2014

Australia & New Zealand

Private Equity & Venture Forum

11th Annual

5-7 March Sydney

Australasian private equity: Leading the way in a changing market

Themes at this year’s forum include:

1 Examine the innovative methods GPs are using to source deals and create alpha

2 Find out where in the world Australasian LPs see the best opportunities

3 Discover how GPs are taking advantage of the resurgence of the IPO market to secure attractive exits

4 Find out if LPs can create a primary investment programme that delivers winning returns from private equity

5 Hear why and how LPs that opted out of the asset class in 07/08 are re-establishing their private equity programmes

6 Hear LPs debate the returns they expect for private equity and if they are being realised

Registration: Pauline Chen T: +852 3411 4936 E: register@avcj.comSponsorship: Darryl Mag T: +852 3411 4919 E: Darryl.Mag@incisivemedia.com

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Number 43 | Volume 26 | November 12 2013 | avcj.com 13

when it tooK its maiden southeast Asia Clean Energy Fund on the road mid 2011, Armstrong Asset Management was sailing into unchartered waters. While there have been other renewable energy funds active in the region, many have benefited from either a broader geographic or sector focus.

“There was no benchmark for private equity in dedicated clean energy funds for Southeast Asia,” says Andrew Affleck, Armstrong’s managing partner, speaking of initial challenges in raising the fund. “Investors needed to see a number of the macro drivers for renewable in Southeast Asia in order to get comfortable outside of our team’s ability to deploy money.”

These drivers included the evolution of government policy in support of renewable energy and the gradual fall in cost for items like solar panels, which have helped make renewable energy projects a more viable proposition.

It is against this backdrop that the fund – which officially launched in May 2012 – managed to find its initial commitments from a handful of European development finance institutions (DFIs)

such as GEEREF and DEG, and an Asian-based corporation, leading to a first close last August. International Finance Corporation (IFC) soon followed, committing $20 million in May.

Then, with additional pledges from French DFI Proparco and Geneva-based Unigestion, the fund was able to surpass its initial target of $150 million, reaching final close of $164 million. In total, Armstrong has signed up 10 investors from Europe, North America and Asia.

The 10-year fund will provide development capital to small-scale renewable energy and resource efficiency projects in Southeast Asia. Typical projects will generate power of up to 10 megawatts from renewable energy resources, such as solar, hydro and wind. The fund will makes 10-15 investments of $5-25 million each, although this could increase with co-investment.

“This is a sector that has huge need and potential scale,” Affleck explains, “so $164 million is really a drop in the ocean to what could be needed. Having partners like IFC, DEG and other DFIs that would willingly be involved in co-investment is real bonus for us and for the

developers we are currently talking to.” The fund has backed two projects so far. In

August, it announced a commitment of up to $30 million to Annex Power to finance the development of solar photovoltaic and biogas power projects in Thailand, Indonesia and the Philippines. Three

months earlier, it took a 60% interest in Symbior Elements to develop and operate solar projects in Thailand. Affleck adds that Armstrong has number of deal in its pipeline in Indonesia.

“The majority of our pipeline is across Thailand, the Philippines and Indonesia, mostly because that is where we have seen the more advance policies towards supporting private investment in renewables,” he adds. “However, we are also seeing a number of deals in Vietnam and Cambodia.”

it hasn’t been a stellar year for India PE fundraising. Driven by a combination of disillusionment over past underperformance and uncertainty about the prospects for the domestic economy, until last week LPs had committed just $1.9 billion to domestic managers. This compares to $2.4 billion for 2012 as a whole, the lowest annual total since 2004.

Kedaara Capital, however, has confounded the skeptics to reach a final close of $540 million on its debut fund, beating the $500 million target. Indeed, the US dollar portion of the fundraising was wrapped up – bar the paperwork – three months ago and several investments are already in the pipeline. The firm plans to target buyouts as well as the minority growth deals that dominate Indian private equity.

“On the control side, we are seeing a lot of interest not only from family conglomerates, but also from first-generation entrepreneurs facing succession issues as well as multinationals looking to divest their India portfolios,” said Manish Kejriwal, Kedaara’s co-founder and managing partner.

Kejriwal set up the firm at the end of in 2011 alongside Sunish Sharma, formerly managing direct at General Atlantic, and Nishant Sharma, formerly of General Atlantic and McKinsey & Company. They sealed a partnership with Clayton, Dubilier & Rice (CD&R) in March 2012 and launched the fund about two months later. A first close came in October 2012.

The partnership with CD&R – a UK-based firm known for its operational approach to buyouts – has helped Kedaara define its approach to control transactions and develop systems for attracting and deploying operating partners. The operating team includes former CEOs from Genpact, Idea Cellular and Hindustan Unilever.

The private equity firm’s ticket size is expected to be $25-30 million and there is no upper limit on transactions due to the appetite for co-investment among LPs. According to sources familiar with the situation, Kedaara is currently looking at a deal with an enterprise value of up to $220 million and an equity check of about $150 million. The PE firm would put in $50-75 million, with LPs providing the rest.

Ontario Teachers’ Pension Plan (OTPP) is anchor LP for the fund, with Temasek Holdings and Abu Dhabi Investment Authority among the

others reported to be participating.

Speaking to AVCJ earlier this year, Jane Rowe, senior vice president at OTPP, stressed the importance of Kedaara’s strong

mix of local networks and Western training and skills – and of Kejriwal’s Temasek credentials. The pension plan also supported the spin-out of FountainVest Partners, which was set up by members of Temasek’s China team.

In addition to the US dollar fund, Kedaara is currently raising a rupee-denominated fund for local investors. It will invest alongside the US dollar vehicle on a pro rata basis. The combined size of the two entities will not exceed $600 million.

Kedaara: Dollars and rupees

Cleantech: SEAsia underserved

funDstim.burroughs@incisivemedia.com / andrew.woodman@incisivemedia.com

Kedaara bucks India fundraising trend

Armstrong’s cleantech breakthrough

avcjausnz.com2014

Australia & New Zealand

Private Equity & Venture Forum

11th Annual

5-7 March Sydney

Australasian private equity: Leading the way in a changing market

Themes at this year’s forum include:

1 Examine the innovative methods GPs are using to source deals and create alpha

2 Find out where in the world Australasian LPs see the best opportunities

3 Discover how GPs are taking advantage of the resurgence of the IPO market to secure attractive exits

4 Find out if LPs can create a primary investment programme that delivers winning returns from private equity

5 Hear why and how LPs that opted out of the asset class in 07/08 are re-establishing their private equity programmes

6 Hear LPs debate the returns they expect for private equity and if they are being realised

Registration: Pauline Chen T: +852 3411 4936 E: register@avcj.comSponsorship: Darryl Mag T: +852 3411 4919 E: Darryl.Mag@incisivemedia.com

Co-Sponsors

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avcj.com | November 12 2013 | Volume 26 | Number 4314

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when sanJeeV aggarwarl, the co-founder of Helion Venture Partners, set up his first company in 2000, the timing could not have been better. As a business process outsourcing (BPO) firm, Daksh eServices emerged at the intersection of several important trends in India.

Firstly, the internet was increasingly becoming an aspect of everyday life and more businesses were looking to take advantage. General Electric (GE) was one of the first to cut costs by moving functions to India, setting up its first local base of operations in 1991. Secondly, as venture capital flowed into the country, entrepreneurs were finding new ways to get start-up funding.

“I was intrigued by the fact that GE had moved some of its business to India and that kind of started to tickle my mind,” says Aggarwal. “I started to think about leveraging the connections between the US and India through telecommunication circuits and moving out some back office processes.”

In this way, Aggarwal was among the first to see the potential of BPO and his experience made him well placed to tap into the opportunity.

Engineer turned investorOriginally from Chandigarh in northern India, Aggarwal started out like so many other professionals of his generation – as an engineering student. His degree in electrical engineering had set him in good stead for his future endeavors but it wasn’t long until he realized his interests lay elsewhere, studying for an MBA and launching a career in business.

Over the following 16 years Aggarwal worked for a number of leading technology companies serving the Indian market, including Motorola, Digital Equipment Corporation and 3COM.

Then, in 2000, Aggarwal went solo. He had seen a gap in the market where so many new internet companies had scaled up their businesses only to find they did not have the internal resources to deal with the growing number of customer enquiries and lost repeat customers as a result. Daksh presented an outsourcing solution.

“There was no BPO industry at that time, in fact we even coined the term,” says Aggarwal. “At that time it was called remote services. It was really the start of the industry except that we weren’t even aware of it then.”

Daksh’s first backer was Actis, which put $2 million towards the necessary infrastructure to provide BPO services. The company became profitable within a year, with revenue reaching $2 million. This early success was largely down to securing Amazon as the first customer.

From there things snowballed. The Amazon name brought in a flood of new customers

and Daksh expanded its offering to include not just email but voice-based customer enquiries. Over the next year revenue grew to $18 million. Citigroup, which subsequently became a customer, stumped up $6million in funding.

Over the next four years the company expanded to a 6,000-person operation with $60 million in revenue and additional operations in the Philippines. Around same time the US computer giant IBM was trying to fill a gap in its portfolio and offer to acquire the company, which it did for an undisclosed sum in April 2004. Aggarwal agreed to stay on with the company but it wasn’t long before he was yearning to embark on a new project.

“One option was to continue to work as an executive at IBM but I had worked for larger companies in the past and I was used to doing

my own thing,” says Aggarwal. “The second option was to start another company like a serial entrepreneur but I didn’t have any interesting ideas at that time. The third option was to leverage my skills in building a company and apply them with a venture capital group.”

Aggarwal took the latter route. He joined Rahul Chandra, a former VC investor with Walden International, Kanwaljit Singh, formerly head of marketing with Intel, and Ashish Gupta, who had been an angel investor in Daksh, and together they formed Helion. He says the new firm was unique in that management by and large came from operational rather than financial backgrounds – a fact that resonated with LPs.

Helion launched its maiden fund in July 2005 with a target of $125 million and a remit of providing early-stage and growth capital to technology-powered companies. It closed at $140 million after about one year in the market.

From start-up to NASDAQAmong the early wins was MakeMyTrip, a travel booking website that previously received seed capital from Gupta. The company was operating in fairly crowded space, competing against the likes of Cleartrip and Yatra, and founder Deep Kalra was looking to scale the business.

“It was a roller coaster because while the business was scaling it was consuming a lot of capital because there was a very serious price war going on between the three players,” recalls Aggarwal. “We put a lot of focus on developing our own technology so we could respond quickly to the market changes. We also outsourced customer service to my prior company – IBM Daksh – and invested a lot in building a strong management team.”

The strategy paid off. By the time MakeMyTrip listed on NASDAQ in 2010, raising $70 million, it had the combined market share of its rivals.

Helion raised $210 million for its second fund, which closed in 2008, and $255 million for its third in 2011. The e-commerce deals have continued and Aggarwal sees the potential for plenty more.

“We will continue to focus on a number of tech-related segments, especially companies that are high growth and capital light,” he says. “E-commerce is part of this. We already have several assets in this segment but it still very early days for the Indian market.”

Tech guruSanjeev Aggarwal, co-founder of Helion Venture Partners, has been at the vanguard of several pivotal developments in India’s tech industry, from the birth of BPO to the flowering of e-commerce

“It really was the start of a new industry except that we weren’t even aware of it”

Number 43 | Volume 26 | November 12 2013 | avcj.com 15

PRIvATE EQUITY DATA FILE | AVcJ ReseARcHAVCJresearch@incisivemedia.com

priVate equity in asia

Investment Breakdown by Country From January to November 2013investee Country amt. invested us$m no. of deals (disc.) no. of investees

China (PRC) 12,610.2 493 347 486

Australia 10,006.1 72 52 70

South Korea 7,041.1 142 132 140

India 6,916.2 344 236 335

Japan 4,098.8 340 263 333

Singapore 957.8 65 51 62

New Zealand 633.2 30 23 29

Vietnam 627.0 9 7 9

Malaysia 538.1 15 11 13

Hong Kong 508.8 13 9 13

Philippines 455.0 7 6 7

Indonesia 395.6 20 4 20

Taiwan 65.0 20 14 20

Thailand 32.0 10 4 10

Mongolia 7.5 1 1 1

Myanmar (Burma) 1.0 1 1 1

Maldives - 2 - 2

Sri Lanka - 6 - 6

Closed FuNd

location: China (PRC)

Fund Name: Gateway Capital Real Estate Fund IV, L.P.

Closing Amount: US$1.025 billion (final close)

launch date: April 2012

Fund Manager/Advisor: Gaw Capital Partners

stage Focus: Buy-outs (MBO/MBI/LBO)

Industry Focus: Real Estate

Geographical Focus: China (PRC), Hong Kong, Singapore, Vietnam

Contact: Kenneth Gaw

Phone: (852) 2583-7700

email: kgaw@pioneerglobalgroup.com

Website: www.gawcapital.com

update: Gaw Capital Partners has raised US$1.025 billion for its fourth real estate fund. The Fund is looking for affordable housing and retail investments in China's Tier II and Tier III cities. It is also expected to have a small provision for investing in Asian markets outside of China. New York State Teachers' Retirement System and San Francisco Employees' Retirement System have committed US$75 million and US$52 million respectively.

NeW FuNds

location: Japan

Fund Name: Renaissance Fund VI Investment Enterprise, L.P.

Target Amount: JPY 12.15 billion

launch date: October 2013

Fund Manager/Advisor: Renaissance Capital Management Ltd.

stage Focus: Buy-outs (MBO/MBI/LBO), Turnaround/Restructuring, Other

Industry Focus: No Preference

Geographical Focus: Japan

Contact: Tamayo Yamada

Phone: (81) 3-5532-3961

email: tamayo.yamada@renaissance-capital.co.jp

Website: http://japan.bnpparibas.com

update: Renaissance Capital Management is raising a JPY 12.15 billion Renaissance Fund VI with an initial close at JPY 8.15 billion. Continuing the strategy of the previous funds, this business rehabilitation fund will mainly invest in non-performance loans of SMEs located in Japan. Organization for Small & Medium Enterprises and Regional Innovation, JAPAN, Hokkaido Bank, Kiyo Bank, Daishi Bank and Higo Bank are the investors.

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