Cash rich Asian corporates to participate in M&A

Asian Corporate Takeovers to Rise as Buyout Firms Lose Edge
By Denise Kee

Aug. 22 (Bloomberg) -- Mergers and acquisitions by Asian companies will increase as competition from buyout firms declines, said Philip Lee, JPMorgan Chase & Co.'s chief executive officer for Southeast Asia.

The credit crunch caused by defaults on U.S. subprime mortgages will make it more expensive for private equity firms to raise funds for takeovers, he said in Singapore yesterday.

Announced mergers and acquisitions in Southeast Asia by buyout firms accounted for almost half of the $11.1 billion of deals in the 12 months ended Aug. 21, compared with about 10 percent a year earlier, Bloomberg data show. Lee said this trend is set to reverse.

``A lot of companies that are non-private equity and non- hedge funds didn't participate as much in the mergers & acquisition transactions because they were simply out-priced by some of the private equity companies,'' he said.

Low borrowing rates helped buyout firms typically raise two- thirds of the cost of a leveraged takeover by borrowing and then using the target company's cash flow to repay lenders.

``The good days of getting cheap credit will not be there, there will be re-pricing of risk,'' said Lee. ``But buying assets is cheaper than six months ago. There is a trade off between the valuation of acquisitions and fund-raising costs.''

More than 45 companies around the world postponed or reworked their debt sales in the past seven weeks and investors shunned loans and bonds used to fund buyouts, including Kohlberg Kravis Roberts & Co.'s planned takeover of U.K. pharmacy chain Alliance Boots Plc.
Banks including JPMorgan, Goldman Sachs Group Inc. and Deutsche Bank AG have been unable to sell debt for leveraged buyouts they have underwritten, according to Citigroup analyst Keith Horowitz in New York.

JPMorgan is stuck with $40.8 billion of debt, according to Horowitz's estimates, while Goldman is holding $31.9 billion and Deutsche Bank has $27.3 billion.