Asia News Update

China: President Xi says annual trade along modern Silk Road would exceed USD 2.5 trillion within a decade

Source: Reuters, 29 March 2015



China is looking to create a Silk Road Economic Belt and a Maritime Silk Road to further its global economic presence. Projects may span as many as 50 countries that have previously expressed interest in the development plan. The proposed development plan includes transportation and resource infrastructure that will better connect Asia to Europe and Africa.

In addition to these trade centric efforts, China is also pitching its Asian Infrastructure Investment Bank to increase its global influence. The United States government and private U.S. companies have voiced opposition to the efforts.

Automotive

Thailand: Falling car sales jeopardize Thailand’s status as most dominant car manufacturer in Southeast Asia

Source: The Wall Street Journal, 24 March 2015

February 2014 marked the 21st consecutive month of declining car sales for the country. Thailand aims to produce 3 mn autos a year by 2017, but in order for last year’s production of 1.92 mn autos to increase, domestic demand will have to increase as well. The country is also looking abroad to increase sales. In 02/2015 exports rose more than 11% as demand for eco-cars gained steam in Australia and Europe. The country sees the eco-car segment as the linchpin for building its auto industry. The advantage of the robust supply chain that exists around Thailand for auto-manufacturing is being eroded by the political uncertainty created by the army’s recent seizing control of the country and household debt, which accounts for 84.7 percent of GDP at the end of Q3/2014. 

Some auto manufacturers are looking elsewhere, like Indonesia and the Philippines where wages are lower, there is more production capacity, the currency is weaker and there is a rising demand for cars. The country’s eco-car program, which launched in 2013, initially attracted 10 car manufacturers who have to commit to making some key car components in the country. But some companies like Mitsubishi, Honda and GM find the current state of affairs in Thailand no longer suitable for their most important manufacturing needs.


Indonesia: Suzuki to invest 1.3 bn USD to grow automobile and motorcycle businesses

Source: The Jakarta Post, 28 March 2015

Investment will be dispersed over three years and will be used to create new two-wheeler and four-wheeler plants, increase local sourcing and spur new product development. Suzuki will work with their local partner, PT Indomobil Sukes, to position itself more as a production base as sales grew in both the car and motorcycle segments to 1.2 mn and 7.86 mn, respectively, last year.  

700 mn will go to building a factory in Cikarang, Bekasiwith which is slated to partially open in Q2/2015 at a production capacity of 120,000 vehicles a year which will allow its factory in Tambun, Bekasi to increase capacity by 180,000 units annually. The larger capacity will also allow Suzuki to boost exports. The remaining investment will be allocated to its motorcycle business, boosting engine manufacturing efficiency and developing transmissions locally.   


India: Ford to triple its India exports with new plant 

Source: Automotive News, 26 March 2015 

The new factory will double Ford’s production capacity in India to 610,000 engines and 440,000 vehicles a year as they look abroad to offset slowing domestic sales. Ford’s sales in 2014 decreased to 77,140 from 80,431 in 2013, as their exports just about doubled to 76,981 during the same period.

The move comes as Ford thinks the Indian auto market will more than double by 2020. The company will make India the center for its EcoSport and Figo Aspire car models.  .

Chemicals

Japan: Mitsubishi Chemical creates renewable bio-based polycarbonatediol product

Source: Chemicals Technology, 26 March 2015

The product will be available in 04/2015, while they currently have the capacity to produce 1,000t per year. The company anticipates product demand to be high in eco-friendly water-borne polyurethane resins.

Characteristics of products created with the new material include resistance to frictional wear, high hardness, chemical resistance and increased flexibility at low-temperatures. Possible use cases are automotive interior materials, automotive exterior coating and resin coatings for electronics.


China: Flour wins contract from TianREC to provide design services and technical support for new polysilicon plant

Source: Chemicals Technology, 24 March 2015

The production capacity of REC Silicon's next generation fluidized bed reactor technology, is expected to be 18,000t of granular polysilicon, an additional 1,000t of Siemens polysilicon and 500t of silane gas loading.

TianRec, which is a joint venture between Shaanxi Non-Ferrous Tian Hong New Energy and REC Silicon, will mainly work with Flour’s Shanghai office, which has recently completed other polysilicon projects in China. Flour’s offices in California and India will support the project as well. The cost of the new plant in Yulin, China is expected to top 1 bn USD.


South Korea: Mitsui Chemicals and SKC finalize plans for evenly split polyurethane joint venture

Source: Chemicals Technology, 23 March 2015

The new venture, named JVC, will combine the polyurethane material businesses from both companies and operate from both Korea and Japan. An annual revenue level of 2 bn USD per year is expected by 2020. JVC will begin operations from 07/01/2015, pending regulatory approval.

Production will consist of toluene diisocyanate, methylene diphenyl diisocyanate, polymethylene polyphenyl isocyanate and polyols in addition to system products. They will joint venture will leverage their existing global reach in East Asia, China, the ASEAN region, Europe and the Americas.

Construction & Property Development

Asia: 870bn USD Norwegian sovereign fund targets Asian real estate 

Source: International Business Times, 23 March 2015

The Norway's Government Pension Fund Global (GPFG) will concentrate investments in the recovering commercial real estate markets of Singapore and Tokyo rather than in specific sectors, according to the fund’s head of real estate investments. The fund held about 2.2 percent, or 18 bn USD, of its assets in real estate in 2014 and is looking to increase that share to 5 percent.

The fund will look for partners to aid in its expansion in Asia. Karsten Kallevig, head of real estate investments at the Oslo-based fund, believes the fund will concentrate mainly on office space, as office vacancies have fallen to 5.3 percent in 02/2015 from 7 percent a year earlier.


Hong Kong: City’s Future Fund doubles government investments in real estate

Source: South China Morning Post, 29 March 2015

The fund will launch this year and double its investments to 8.76 bn USD. CBRE estimates the fund will grow at 5 to 7 percent a year. Investment will be centered in cities with well-developed legal systems. The backbone of the fund will be the 28.37 bn USD Land Fund. The Hong Kong Monetary Authority runs the portfolio, in which property accounted for 30 percent of its assets by the end of last year.

Ada Choi, senior director of CBRE Research Asia, believes it could take between three to five years before the fund has sizeable global real estate investments. She expects these investments to be concentrated in key cities. The purpose of the fund is to accrue savings for future generations and offset the costs associated with an aging population.


China: Bond market weathers property development storm

Source: The Financial Times, 24 March 2015

Recently Kaisa, considered a good indicator of the health of the property bond market, was downgraded by S&P from a BB credit rating to D after missing two bond coupon payments. Because tens of billions of dollars more has been lent in much the same way, the industry viewed this as a trial for the robustness of the sector. Several other Chinese developers have also reported sudden declines in sales and inner company turmoil amidst a weakening housing market, in spite of two rate cuts by the People’s Bank of China. The bond market has proved resilient, however. Over the past year the JPMorgan Asian credit index (JACI) has risen 2.1 percent, and even the high yield segment, which is comprised mostly of Chinese real estate companies, is up 1.5 percent.

The real estate sector has raised more than 3.5 bn USD in new borrowing since Kaisa was downgraded. Overseas debt markets for Asian borrowers have grown at a brisk pace since 2010, from 18 bn in G3 currency to 52.4 bn so far this year during the same period. The investor base has responded by becoming more local and interested in smaller, more agile companies. The current property market environment is still declining and developers have taken notice, with only six developers raising new debt this year as compared to the 20 during the same period in 2013.

Consumer & Retail

Japan: Consumer prices rise 2.0 percent on year in February

Source: Nikkei, 27 March 2015

The core consumer price index was 102.5 as compared to the 2010 base of 100. April’s 3% percent consumer tax increase excluded, consumer prices were flat from a year earlier, driven in part by a 2.1 percent drop in energy prices. 

Consumer spending power decreased as the effects of the consumption tax continue to linger, and household income decreased 0.7 percent causing average household spending to fall at an inflation-adjusted rate of 2.9 percent on year. Private consumption makes up about 60 percent of Japan’s GDP. The low inflation rate muddles the prospect of reaching their target of 2 percent.


Taiwan: Consumer confidence index reaches record high, according to study

Source: The China Post, 28 March 2015

The CCI rose to 1.69 points to 91.13 in March, which is the highest level since index records began 15 years ago. Only the confidence level for durable goods purchases declined, by 1.25 points from 105.05. The stock investment index registered “optimism” for the first time since January 2011 in part due to stable exchange rates bringing in foreign investment and the tapping of government funds to power stock growth.

The real estate market, however, faces several uncertainties: the consolidated housing and land tax, which does not have a launch date; the likely rise of interest rates by the central bank and new floor area ratio with expected launch date of July 2015.


Australia: Consumers pessimistic about future, survey finds

Source: The Sydney Morning Herald, 28 March 2015

The survey, conducted by Mastercard, rated Australia at 34.1, which is far below the regional average of 65.5. The survey asked residents from 16 Asian countries about economic outlook, employment outlook, income prospects and quality of life.

The Ipsos Mind & Mood Report shows job security to be the top concern, as well as rising home prices and the Abbott administration’s “debt and deficit” campaign. Many workers feel uneasy about overseas outsourcing and increase in casual work. Their pessimism is relative to the optimism felt by those in developing countries in the region who believe their economic progress will continue.

Energy, Resources & Environment

Asia: Thermal coal price retreats as Japanese deal with Australia creates anxiety

Source: The Financial Times, 25 March 2015

Australia, the measure of coal prices for the Asian market, has experienced losses of 14 percent over the last three weeks to 58.70 a tonne as quoted for physical cargoes from the Australian port of Newcastle. A weakening of supply has strongly contributed to the 60 percent fall in price from its peak in 2011. The agreements that have created anxiety in the markets are those regarding Australia and Japan. Australia supplies Japanese utility companies with a great deal of their coal and their annual supply agreements run from the start of the Japanese fiscal year, 04/2015.

Historically these agreements have been tied to the Newcastle price, but many say Japan is looking to buy less coal from contracts and more on the less costly spot market. Estimated are that coal purchases from these annual contracts may fall to 10 mn to 15 mn tonnes, down from a rumored 20 mn to 30 mn in 2014 and 40 mn to 50 mn in 2011. China’s reduction in thermal coal imports and its protectionist measures favoring domestic suppliers have put increased pressure on the market price.


China: Coal usage decreases faster than expected as cleaner-building fuels and economic slump reduce usage

Source: Reuters, 26 March 2015

Utilization rates at thermal power plants, which are mostly coal powered, have dropped to 52% for the first two months of the year. Annual utilization rates fell to their lowest ever in 2014 when they were at 57.3 percent, which was down from 57.3 in 2013. This meant a 1.3 reduction in coal use for power generation. In 2014 coal imports also fell 11% year on year. Coal usage still makes up roughly two-thirds of China’s energy mix. 

The weakening demand has hurt coal exporters like Australia with prices dropping 30 percent from last year. Beijing has expressed its commitment to invest in cleaner fuels and reduce the pollution of its cities. By 2020 the country hopes to bring down coal use down from the current 64.2 percent to below 62 percent and also have non-fossil represent 15 percent of energy use, up from 11.2 percent last year.


Indonesia: President says construction of 4bn USD coal-fired power plant will commence in April

Source: Reuters, 24 March 2015

At 2,000-megawatt, it will be constructed in Central Java and completed as early as 2018 as long as land reclamation is successful. According to a Greenpeace representative, 73.6 acres remain privately held as the owners are reluctant to give-up the land. The newly elected President Widodo has promised to make doing business in the country easier especially in the area of land acquisition for power, infrastructure and industrial development. 

The joint venture PT Bhimasena Power Indonesia, set up by PT Adaro Energy Tbk, Itochu Corp and Electric Power Development Co Ltd (J-Power), will build and operate the plant.

Financial Services

Australia: Australia in negotiations to join the Chinese led Asian Infrastructure Investment Bank

Source: The Japan Times, 29 March 2015

The Abbot Administration is looking at the possibility of joining because the fund is intended for economic development by way tending to infrastructure needs in the region, which could benefit Australia. According to a statement by Prime Minister Tony Abbott, Foreign Minister Julie Bishop and Treasurer Joe Hockey, “Key matters to be resolved before Australia considers joining the AIIB include the bank’s board of directors having authority over key investment decisions, and that no one country control the bank.” 

All members of Southeast Asia’s regional bloc and India have also expressed interest in becoming a founding member of the bank. Notably, Japan and the United States are holing out.


Japan: Mizuho seeks to add to its No. 1 M&A position by hiring US and Asian bankers

Source: The Japan Times, 26 March 2015

Mizuho will add recruits from abroad and is considering relocating employees from Japan. The company will also increase its cooperation with HSBC Holdings PLC and Evercore Partners Inc. on the business of cross-border mergers. The company has also been buying assets abroad to gain access to corporate clients. 

The move comes as Japanese companies have spent 39 bn USD on acquisitions abroad so far in 2015 to build value while the yuan remains weak. Currently Mizuho staffs about 100 M&A bankers globally, 80 of whom are in Japan.


Indonesia: State-run banks turn to government-led infrastructure projects for growth

Source: Reuters, 25 March 2015

To pick up the slack of lackluster loan growth, Indonesia’s state-run banks are looking to update the country’s outdated infrastructure. The slowing growth can be attributed to the reduction of available credit to businesses in the commodity sector and local businesses delaying expansion plans due to weak economy and the rupiah’s weakening against the dollar.

A more conservative approach to lending this year has caused loan growth to decrease to 11.5 percent in January/2015, the lowest in about five years. In 2014 the reeling in on lending lowered the growth to 4.5 percent, the lowest in nine years. Outstanding loans lowered to 11.6 percent in 2014.

Logistics & Transportation

Thailand: Eight-year USD 58.3 billion investment plan approved by junta

Source: Reuters, 27 March 2015

On Friday, the eight-year USD 58.3 billion (THB 1.9 trillion) investment plan, which will begin this year, to develop Thailand’s transport system and ease logistics was approved by the military government. Deputy government spokesman Colonel Sansern Kaewkamnerd says the plan will help boost the economy through strengthening employment, transportations, investment and tourism since it will cut Thailand’s logistics costs from 14.4% to 2% in 2027.

Sansern says that the investment plan will be funded through borrowings, state enterprises’ revenues, from the annual budget and public private partnerships. The government expects Thailand’s economy to grow 4% this year, which will be driven by public spending, compared to the 0.7% seen last year.


Singapore: Neptune Orient Lines’ allure increases after sale of its logistics unit

Source: Bloomberg, 25 March 2015

Neptune Orient Lines Ltd agreed to sell its logistics unit, APL Logistics, last month for USD 1.2 billion to Kintetsu World Express Inc to reduce its debt. This has increased its allure for a takeover bid. Analysts forecast the company will return to profit in 2015 after four straight years of losses since it will benefit from the US economic recovery. If the sale occurs, Temasek Holdings Pte may have its returns bolstered. Orient Overseas International Ltd is seen as the natural partner for Neptune Orient Lines, according to Credit Suisse Group. Timothy Ross, head of Asia-Pacific transport research at Credit Suisse, says that Orient Overseas is the most likely partner since it has also increased its focus on shipping after selling assets. He also says that a merger is more likely.

Mitsui O.S.K Lines Ltd. and Nippon Yussen K.K. are also logical buyers since they are regional competitors, according to Teo at CMC Markets. Suvro Sarkar, an analyst at DBS Group Holdings, says European suitors, such as Hapag-Lloyd, may also be purchasers because of its trans-Pacific routes to the US. Temasek had previously explored a merger for Neptune Orient Lines, but those talks broke down due to price and structure issues. The sale of APL Logistics will resurrect the sale of Neptune Orient since it is now simplified. Temasek has moved it strategic focus away from shipping and moved it towards other growth areas like tech, health care and consumer sector. Rahul Kapoor, a Singapore-based director at Drewry Maritime Services, says that Neptune Orient looks more like a buyer of assets than a takeover target after its logistics business since Neptune Orient has become a symbol of the Singapore shipping industry.


India: Amazon sets up logistics company to deliver products directly to clients

Source: The Economic Times, 24 March 2015

Amazon has set up a subsidiary, Amazon Transportation Service Private Limited, in India to directly ship goods from sellers to clients in India. This type of service is already being offered by Flipkart, through eKart, and Snapdeal. Amazon’s Indian marketplace expects to sell goods work over USD 2 billion this fiscal and will continue working with Indi aPost, Gati, Blue Dart and DHL. Samuel Augustine Thomas, director of transportation for Amazon in India, says, “The logistics arm has been set up to aid in last-mile delivery as products can be shipped faster.” The “last-mile delivery” is seen by experts as increasingly crucial for leadership in India’s ecommerce industry, which is forecast to be worth USD 43 billion by 2018. 

Many large marketplaces in India have opened their own last-mile logistics arms in India since India’s logistics sector does not have the capability to deliver goods next day. Top online marketplaces are strengthening their own inhouse logistics fleets while startups specializing in providing third-party delivery logistics to etailers have emerged across India. Ankur Bisen, senior VP at Technopak, says, “It makes sense to hive off (logistics divisions) or operate as separate arms as they may achieve a scale and reach their full potential by servicing other ecommerce companies.” Amazon is the first online marketplace to offer two-day and one-day guaranteed delivery in India, which has caused Snapdeal and Flipkart to offer the same options. Flipkart has announced plans to launch three-hour delivery in 2015 while Flipkart will spin off its logistics arm eKart as a separate entity. Amazon has recently launched EasyShip, which allows sellers to choose their courier partners and ship on the same day. Logistics is proving to be the differentiator as the little choice between the top online retailers and capital are no longer a constraint.

Manufacturing & Industrial

Thailand: Top industrial firms increase R&D budgets

Source: Reuters, 26 March 2015

The two biggest industrial groups in Thailand will increase R&D spending to develop higher-end products since rivals in Vietnam are winning more orders for low-margin, commoditized goods with cheaper prices. Foreign investors have shifted operations to other Southeast Asian countries, such as Vietnam and Myanmar, where labour costs are lower since Thailand has recently increased its minimum wages.

Siam Cement has increased its R&D budget to USD 147 million (THB 4.8 billion), which is 1% of projected sales and up from THB 2.7 billion or 0.6% of sales in 2014. It is focusing on higher-margin petrochemical products. PTT will spend TBH 2.25 billion on R&D in 2015, an increase from the THB 2.08 billion in 2014. It is expanding its specialty products. The Thai government has also increased R&D corporate tax deductions equal to 300% of R&D spending, which is up from 200% previously.


China: Factory sector activity falls to an 11-month low in March

Source: NY Times, 24 March 2015

The activity fell due to shrinking new orders, which signals persistent weakness in the economy. According to a preliminary purchasing managers’ index compiled by Markit, it fell to 49.2 in March, which is below the 50-point level that separates growth from contraction on a monthly basis and down from a final PMI of 50.7 in February. The survey suggests that manufacturers faced challenges from deflationary risks and weaker domestic demand. Despite two interest rate cuts since November, the economy has still lost momentum with analysts expecting China’s Q1 economic growth to decrease below the government’s full-year target of around 7%. The growth is expected to fall from 7.4% last year due to factory overcapacity, local debt and a property downturn. According to the Chinese Academy of Social Sciences, annual economic growth in Q1/2015 will slow to 6.85% and slow to 6.8% in Q2/2015.

Economists at the China International Capital Corporation expect the weaker data to increase pressure for policy loosening with forecasts that the central bank will cut reserve requirement ratios at banks six more times in 2015 in addition to another interest rate cut. The new orders sub-index decreased to a 11-month low of 49.3 in March while new export orders decreased for a second straight month. The employment sub-index hit its lowest since the depths of the global financial crisis and contracted for a 17th straight month. Annabel Fiddes, an economist at Markit, says, “Manufacturing companies continued to benefit from falling input costs, stemming from the recent global oil price decline…However, relatively muted client demand has led firms to pass on savings in a bid to boost new work, and cut their selling prices at a similarly sharp rate.”


Singapore: Manufacturing output decreases 3.6% y/y in February

Source: Channel NewsAsia, 26 March 2015

Output fell 3.9% y/y if biomedical manufacturing is excluded. Manufacturing output increased 4.1% on a seasonally adjusted m/m basis and grew 1.1% m/m if biomedical manufacturing is excluded. In February, output for the general manufacturing industry cluster increased 1.3% y/y, with the food, beverages and tobacco segment growing 7.4% due to higher festive demand, while output for the biomedical manufacturing cluster decreased 2.5% y/y. The medical technology segment increased 21.7% due to higher export demand for consumables and medical instruments.

All segments in the electronics cluster except other electronic modules and components declined with total output down 4.5% y/y. Precision engineering fell 5.8% y/y with all of its segments seeing declines due to fewer working days and lower orders from the Lunar New Year. The transport engineering cluster decreased 7.2% y/y. Lower demand for engine repair jobs caused the aerospace segment to decrease the most at 18.1%.

Pharmaceuticals & Healthcare

India: Sun Pharma ready for more acquisitions after Ranbaxy deal

Source: Reuters, 25 March 2015

After acquiring Ranbaxy Laboratories Ltd in a USD 3.2 billion deal, Sun Pharmaceutical Industries Ltd is ready to make more large acquisitions. The deal, the largest acquisition in the pharmaceutical industry in Asia during 2014, increased Sun Pharma’s market share in India to nearly 10%. According to Managing Director Dilip Shanghvi, the most important focus for the company is winning the confidence of regulators. This is because the US food and Drug Administration is increasing scrutiny of India’s pharmaceutical industry, which supplies around 40% of the drugs sold in the US.

Sun Pharma is looking to increased annual R&D from USD 250 million to USD 300 million, though no timeline has been announced. Most of the focus will be on tildrakizumab, a psoriasis drug being developed under a licensing deal with Merck & Co Inc. Uday Baldota, CFO at Sun Pharma, says that the company is looking to do more licensing deals with large pharmaceutical firms looking at emerging markets.


South Korea: Eli Lilly and Hanmi announce exclusive license and collaboration agreement to develop and commercialize immunological therapy

Source: PR Newswire, 19 March 2015

Eli Lilly and Company and Hanmi Pharmaceutical Co, Ltd. entered the agreement, which is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act, similar requirements outside the US and other customary closing conditions, for Hanmi’s oral Bruton’s tyrosine kinase inhibitor, HM71224, for the treatment of autoimmune and other diseases. HM71224 is ready to enter Phase II and they plan to investigate the molecule for the potential treatment of lupus, rheumatoid arthritis, lupus nephritis, Sjögren's syndrome, and other related conditions.

Under the terms of the agreement, Eli Lilly will receive worldwide rights to the molecule for all indications except in China, Hong Kong, Taiwan and Korea. Hanmi will gain an initial payment of USD 50 million and may gain USD 640 million in potential regulatory, development and sales milestones while Eli Lilly will take manufacturing, development, regulatory and commercial leadership for the molecule in Eli Lilly territories. Hanmi will also be eligible for tiered double-digit royalty payments if the BTK inhibitor is successfully commercialized.


Malaysia: IHH Healthcare purchases 51% share of Continental Hospitals 

Source: International Business Times, 24 March 2015

The acquisition of the 51% stake was made through IHH Healthcare’s subsidiary firm, Gleneagles Development, for USD 45.5 million (MYS 166.73 million). IHH has also agreed to purchase five nursing homes in Japan last week by infusing MYS 182.62 million into Godo Kaisha Samurai 10.  

This deal in Japan came after a recent ruling by Singapore’s competition watchdog that blocked IHH’s proposal to purchase a Singaporean unit of India’s Fortis Healthcare for MYS 346.5 million since the Competition Commission of Singapore provisionally ruled that the purchase plan would reduce competition.

Private Equity

Australia: US private equity firms find a chilly reception

Source: NYT, 23 March 2015

Kohlberg Kravis Roberts and a consortium of investors are celebrating the acquisition of the financing arm of General Electric in Australia and New Zealand. This is cause for celebration since private equity firms are seen as trying to purchase companies cheaply in an environment where few deals meet their normal investment threshold of at least USD 1 billion. Since 20014, Bain Capital, the Blackstone Group, the Carlyle Group, KKR and TPG Capital have complete 17 leverage buyout transactions in Australia worth USD 12.74 billion. Over the last year, KKR’s buyout proposals have been rebuffed by Australian companies.

A partner at a leading corporate law firm in Australia says, “Nonexecutive directors on Australian boards have a deep suspicion of private equity…The perception in many Australian boardrooms is that private equity’s nonbinding takeover proposals are tire-kicking exercises.” The ability of Australian journalists to have sources discuss potential buyout details damages the good will and trust between the target and the potential private equity acquirer. US private equity giants are predicted to invest in controlling or minority stakes in the mining sector. According to an anonymous Australian lawyer, US private equity firms need to do smaller deals if they want to keep an office in Australia.


India: Warburg Pincus ramps up private equity investment with 413 mn USD invested in 2014

Source: The Economic Times, 26 March 2015

Since 2007 when it had invested 438 mn USD, Warburg Pincus’s investments have declined in nearly every subsequent year. The slowdown in investment has been reversed, however, as the firm invested 413 mn USD in seven companies in 2014. Three companies - Cartrade.com, Laurus and Kalyan Jewellers – received the majority of the money. This series of investments put Warburg Pincus in the top 5 Private Equity (PE) funds of 2014, behind IFC, SoftBack Corp and Temasek.

Many PE funds find the current investment climate in India to be less than ideal. A notable factor for this is poor returns, as industry sources say PE funds have returned less than 30 cents on every dollar invested. Other factors include lack of exit opportunities, the depreciating rupee and disconcerting macroeconomic factors. Warburg Pincus’s successful track record has bucked this trend, as its limited partners value the company’s experience in India and their returns to investors of 3 bn USD so far. Other funds have difficulty convincing investors to invest in India. During the 2007-2013 period, Warburg Pincus invested in more publicly listed companies, a move away from traditional PE investing where the investment focus is more on unlisted and under-the-radar companies. Their three biggest investments in 2014 took the fund back to its roots, as they are all unlisted and entrepreneur led.



Technology, Media & Telecommunications

Korea: South Korea to invest 5 bn USD in new growth tech sectors by 2020

Source: The Korea Herald, 24 March 2015

South Korea, in trying to realize the Park Geun-hye administration’s creative economy initiative, is looking to invest in 19 business sectors like wearable devices and supporting services, Internet of Things technology, intelligent robots, the fifth-generation mobile network, smart cars and intelligent semiconductors. The government expects the plan to generate 100 bn USD in exported goods and services by 2024. ICT Minister Choi Yang-hee suggests the government should take legislative action to ease regulations to help foster the economic growth of these sectors.

Already having the advantage of Samsung and LG’s global reach, the government hopes to take an early lead in the wearables market by 2020. With smart-cars, the focus will be on self-driving technologies and traffic control systems, while potentially restrictive regulations are relaxed. The country is also looking to be the first country to implement the 5G mobile network and plans to pilot the service by 2018. With intelligent robot development, the government will support smaller companies to aid in reaching their desired level of production. The final plan is to be confirmed in April.


Japan: Panasonic looks to spend 1 bn USD on acquisitions over next four years

Source: Reuters, 26 March 2015

The firm has no clear idea of which companies it would like to acquire, but has 1.67 bn USD budgeted for M&A in the 2015 fiscal year, according to CEO Kazuhiro Tsuga. The company had identified a strong profit outlook for its automotive and technology businesses.

The firm is targeting an operating profit of 3.59 bn USD in the next fiscal year, up about 25% from what it expects it to be for fiscal year 2014.


Philippines: Country is now the third largest smartphone market in Southeast Asia

Source: Tech in Asia, 25 March 2015

The country is now third, only to Indonesia and Thailand who are first and second respectively. According to the IDC, 26.8 mn mobile phones were shipped to the Philippines in 2014. The ratio of those that were smartphones grew 23 percent from 2013 and accounted for 47 percent of mobile phone shipments in 2014. Smartphone shipments saw 76 percent year-on-year growth, due to low cost options from local vendors.  

The decreasing price of entry into smartphone ownership has many seeing them as a better value than feature phones. Smartphones costing 90 USD make up 58 percent of all smartphone imports last year. Q3/2014 was the first time smartphone shipments outnumbered that of feature phones. For 2015, IDC projects growth of 20 percent for smartphone shipments and a 20 percent fall in shipments of feature phones.