CVC, others take hit in Asia

It’s been a tough stretch for the Asian portfolio of CVC Capital Partners, a London-based firm that is taking hits from its Asian investment activity.

The firm recently failed to dispose of Amtek Engineering, the Singapore metal stamping company it bought last year, and is trying to sell Japanese shoe repair company Minit Asia Pacific in an acquisition climate getting worse by the day. CVC also has several Asian portfolio companies under pressure and a $4 billion fund to spend in a region where deals are getting smaller and scarcer as global financial turmoil deepens.

CVC is not alone, with Asia portfolios of other major Western private equity firms being hit as well and tough markets making it hard for them to take profits on earlier investments.

TPG Capital, which also raised a $4 billion Asian fund, has invested in several finance-related companies that are hurting from the economic slowdown, while shares of Ta Chong Bank, a Taiwan bank backed by The Carlyle Group, are down about 50% this year.

Private equity firms rushed to Asia in the last few years to cash in on the region’s booming economy, only to find a tougher than expected deal climate. The economic slowdown across Asia and recent market volatility has made the going even worse.

For CVC, the latest disappointment is the failure to sell Amtek, which it co-purchased with Standard Chartered’s private equity unit for $365 million last year. Reuters reported in August that CVC and StanChart were preparing to sell the company, which had shown a big increase in cash flows. The two firms thought they had private equity buyers lined up, but bank financing tightened quickly. Talks with potential suitors have broken off, say sources who have worked with CVC.

A CVC spokesman declined to comment.

CVC is also trying to sell Minit Asia Pacific Co. Ltd, which it acquired for $152 million in 2006, according to the source with knowledge of the portfolio. While the source says that four bidders have emerged and final offers likely to come next month, pulling off a deal in this environment would be remarkable.

“This is certainly a tough time (for the industry) even in Asia and China,” says Liu Erhai, managing director of Legend Capital, the investment arm of Lenovo, China’s top PC maker.

His concern was slumping stock markets and the impact that has had on private equity firms trying to cash out of investments by taking companies public through initial offerings.

“From the perspective of private equity investors, the IPO as an exit channel is very important, in particular in Asia and China, where we do not have too many other choices to exit,” he says.

CVC Capital is a respected name in the private equity business. The net internal rate of return for the 2000 Asia fund was 31%, or 8 percentage points above a benchmark for top funds, according to its website. Its European funds outperformed the same benchmark, the 2005 fund, by a huge margin.

But according to California Public Employees’ Retirement System, which has invested in CVC funds, the net IRR on the 2005 CVC Asia fund was less impressive. CalPERS put $100 million into that fund, earning a net IRR of 0.3%, according to the CalPERS website.

CVC’s website says its Asian portfolio has 14 investments. —Michael Flaherty, Reuters