Private equity looks to Vietnam and Indonesia: survey

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Factory workers change shifts at an industrial park in Vietnam. Photo: Bloomberg

Higher prices for companies in North America and political and regulatory risks in China are leading private equity investors to consider the emerging markets of southeast Asia, a survey has found.

Private equity firms that raised money from pension funds, insurers and endowments on the promise of delivering superior returns, have unearthed few deals in China and have competed fiercely for the businesses they can find, pushing up prices.

The trend to higher prices is echoed in private equity's largest market, the United States, where the supply of cheap financing from lenders has given buyout firms the firepower to pay more for companies.

Nascent Asian economies such as Indonesia and Vietnam were favored by one fifth of investors over the region's more mature markets including China and India, according to a survey conducted by private equity firm Coller Capital.

Over half of the 131 investors questioned said the industry had been too optimistic about China and 69 percent felt the same about India citing issues around politics, corruption and regulation.

"It's partly a matter of people understanding the risks better and partly a matter of increasing competition, as more and more money, both domestic and international, chases deals in China," Jeremy Coller, Chief Investment Officer at Coller Capital told Reuters.

The Coller findings, based on a survey of investors in private equity funds from North America, Europe and Asia-Pacific, also reflect concerns over the long-term future of investment in the United States.

Two thirds of North American investors said that the poor performance of initial public offerings (IPOs) - when a company is first floated on the stock exchange - was likely to last for the foreseeable future.

"One of the universals is certainly the weight of legislation and the extra cost. Becoming a public company is more costly and more onerous in terms of regulation than it used to be," Coller said.

Global IPO activity has been weak following the 2008 financial crisis although an improvement in new share issuance towards the end of the third quarter could pave the way for a rebound in 2013, bankers have said.

US leveraged buyout deals were up 27 percent in the first three quarters of 2012 compared with the previous year, and 96 percent higher in the third quarter at $28.9 billion, according to Thomson Reuters data.

Private equity firm CVC last month hired banks to sell a stake in Indonesian department store Matahari, hoping to double the value of its investment within just two and a half years.

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