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NEWS UPDATES Asean Affairs    16 August  2012

Southeast Asian firms flex deal-making muscles

16-Aug-2012

In what seem to be a shift in the economic balance of power, companies in Southeast Asia are beginning to show their claws and have flexed their deal-making muscles to grab a bigger slice of the pie.

The Wall Street Journal (WSJ) reported on Tuesday that Southeast Asia's big companies largely focused on their home markets, where they often enjoyed minimal competition.

“But after years of fat profits and rapid growth, many are now running out of room to expand at home, forcing them to look elsewhere to deploy their formidable cashpiles, much as Chinese, Indian and other Asia companies did before them,” it said.

It noted that the multi-billion dollar tussle between Heineken NV and Thai investors for control of one of Southeast Asia's biggest beer empires was showcasing the latest shift in Asia's balance of power, as companies from the region emerged as larger players on the international stage.

In the latest brew battle, the WSJ noted that Thai Beverage and Kindest Place, companies linked to billionaire Charoen Sirivadhanabhakdi, recently upended Heineken's long-standing position in the region with moves to acquire an 8.6 per cent stake in one of Asia's fastest growing beer companies, Asia Pacific Breweries (APB), and a 26.2 per cent stake in Fraser & Neave, a Singapore-listed conglomerate that has a joint venture with Heineken in APB.

Heineken responded with a defensive US$4.1 billion offer to buy out F&N's stake in ABB, which would allow it to maintain control. F&N then accepted Heineken's bid.

However, Kindest Place made a $831 million counter-offered to buy part of F&N's stake at a higher valuation, potentially setting up a new battle for control, WSJ said.

It also said the increase in business interest had created significant new competition for Western firms, while adding yet another source of upward pressure on asset prices in industries as diverse as beer, energy and real estate.

Data showed that cross-border acquisitions announced by companies in the South-East Asian region reached a record $29.9 billion in the year-to-date, excluding purchases by the region's sovereign-wealth funds.

In comparison, that is approaching triple the $11 billion this time last year, and compares with 23.2 billion ringgit ($7.42 billion) in all of 2011, according to data provider Dealogic.

“The European debt crisis, meanwhile, has made some assets cheaper for Southeast Asian firms,” said the financial newspaper.

Closer to home, eyes are also drawn to state-owned Petroliam Nasional Bhd's $5.8 billion bid to acquire Canada's Progress Energy Resources Corp, while Genting Bhd has also turned heads in the United States by trying to launch a $4 billion casino resort at the Aqueduct Racetrack in Miami.

“Though both have hit hurdles. Malaysia already had the world's second and third biggest initial public offerings this year, and one of them, palm oil company Felda Global Ventures Holdings Bhd, is expected to use some of the $3.3 billion it raised to buy agricultural assets worldwide,” it said.

Recently, Sime Darby Bhd, the world's largest listed palm oil producer by acreage, and SP Setia Bhd teamed up to acquire Battersea Power Station, one of London's most iconic landmarks, for $620 million for a real-estate project that is expected to have a gross development value (GDV) of 8 billion British pounds ($12.55 billion) over a period of 15 years.

However, it said it isn't clear if Southeast Asian companies have the mojo to match up with bigger international players. WSJ cited Thailand's PTT Exploration as example, when the company ran into trouble in 2009 when an offshore well it picked up in an acquisition of an Australian energy company sprung a leak, resulting in the worst oil spill in Australian history.

“South-East Asian firms can do some good deals (and) and there is nothing wrong with the entrepreneur who run them. But compared with powerhouses like Toyota or Samsung, “they have no technological capacity,” said Joe Studwell, an economic researcher who was quoted in the article.

WSJ said the companies are also often less experienced in global competition, relying on local business relationships to dominate their home markets and fat markets to drive deals.

“There is little doubt the South-East Asian companies are raising eyebrows though,” it said.

Aside from having tonnes of cash to play with, the South-East Asian firms see other advantages to scale up internationally. Some are positioning themselves for the creation of a Southeast Asian regional economic community of roughly 600 million people across 10 countries in 2015.

Leveraging on that idea, CIMB Group Holdings Bhd purchased the Asian equities franchise of Royal Bank of Scotland Group PLC for $142 million after closing several other deals as it tries to become Asia's newest financial powerhouse.


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