1. PRIVATE EQUITY FUNDS
PUSH IN FRONTIER MARKETS

2. PRIVATE EQUITY FUNDS
INVESTMENT IN
FRONTIER MARKETS
making sense of the recent trend
• “We are participating in what I believe is an absolutely seminal 50-year transition,”
Jonathan Bond, partner at emerging markets investor Actis, said during the opening panel
of the Global Private Equity Conference, hosted by International Finance Corp. and the
Emerging Markets Private Equity Association in Washington, D.C. Private Equity investors are
facing a new world in which over-leveraged western companies are no more an option. Opportunities
are now in challenging, unpredictable but highly profitable territories. Since the beginning of the
year we have seen KKR, Carlyle, and other leaders of the private equity, deploy and teams and
capital in Latin America, Asia and Africa. At Frontier Markets capital we believe there are real and
significant investment opportunities in emerging markets, large and small.
• KEmerging and frontier markets are • Furthermore, limited partners expect the
seeing a lot of private equity investment proportion of their private equity allocations
lately. The big names are moving in with KKR directed at emerging markets to increase
announcing he will raise a Latin American fund in from 11-15% today to 16-20% in two years.”
the coming years after Carlyle announced that it
raised a $950Mln fund dedicated to the region.
Asset allocation to Asia has risen from 5%
Preqin has recently published a study on private to 23%. Note that India lone has seen its
equity investing in emerging markets and the share grow from $1.9bln to $2.1bln. Big deals
results are not surprising. “73% of private equity are coming in India with Apax Partners and
investors expect general partners to experience iGate Corp. that bought a majority stake in
intense competition in China over the next year. Patni Computer Systems Ltd for $1.22 billion.
Furthermore, limited partners expect the The second largest deal was a private equity-
proportion of their private equity allocations assisted buyout of Honda Motor Co. Ltd’s 26%
directed at emerging markets to increase from stake in the joint venture Hero Honda Motors Ltd
11-15% today to 16-20% in two years.” by Hero Corporate Service Ltd. Bain Capital and
Asset allocation to Asia has risen from 5% to Government of Singapore Investment Corporation
23%. Note that India lone has seen its share paid $838.59 million for this transaction.
grow from $1.9bln to $2.1bln.

3. • Another big deal was the purchase of a stake in The Latin America and Caribbean region, together
HDFC Bank Ltd for $650 million by Carlyle Group. with Sub-Saharan Africa, raised 83.9 percent of
Keep in mind that a study last month by the those funds, showing their development potential
Emerging Markets Private Equity Association and following emerging Asia.” It’s interesting to see
Coller Capital found that Brazil will be the most how China remains the main fund raiser
attractive emerging market country for private despite its inability to develop really interesting
equity investors in the next 12 months. projects, India, Indonesia, Malaysia are the main
creators of projects worth investing in.
Note: ”Among the roughly US$10.4 billion The Chinese market seems immature and is
worth of PE funds attracted to emerging becoming a fund storage market. PE contributed
markets all over the world, around US$9.3 to a mere 0.16 percent to the country’s GDP in
billion made its way to emerging Asia as its 2010, far from the close to 1% contribution in
final destination, accounting for 93.3 percent to the US and the almost 1.5% in the UK.
the total EMPE funds flow over the past three
months. For example, in Malaysia, private equity
firms Carlyle and JC Flowers submitted
Beating all its emerging Asian neighbors, China first-round bids for a 25 percent stake
has become the largest EMPE fund raiser. It in Malaysian lender RHB Capital , the
received funds amounting to US$5.7 billion, 6.7 stake being sold by Abu Dhabi Commercial
times more than the US$858 million attracted by Bank has a market value of $1.6 billion.
its neighbor India.”
In China, the Qualified Foreign Limited Partners
Other emerging countries in Central and Eastern (QFLP) scheme, favor applicants with connections
Europe, Commonwealth of Independent States, to government-backed funds and homegrown
Latin America, Middle East, North Africa and Chinese enterprises. Established in 2011, the
Sub-Saharan Africa shared the rest of the EMPE QFLP permits licensed non-Chinese private equity
funds with a value of US$1.1 billion. firms to convert foreign currency into Renminbi
for onshore investment in China.

4. PRIVATE EQUITY FUNDS
INVESTMENT IN
FRONTIER MARKETS
making sense of the recent trend
• Once approved, a firm may convert foreign • In Indonesia, Private equity firm Carlyle Group
currency, up to a quota permitted by its license, CYL.UL and Japanese brewer Suntory SUNTH.
without approval by the State Administration UL are leading a race to buy a 30 percent stake
of Foreign Exchange (SAFE). Authorities have in Indonesian consumer firm GarudaFood worth
expressly indicated in the guidelines that ties over $200 million.
to Chinese government funds and state-owned
enterprises are a plus… The second largest deal was a private equity-
assisted buyout of Honda Motor Co. Ltd’s
Hemara Wikramanayake, the head of Macquarie 26% stake in the joint venture Hero Honda
Funds Group, went further, predicting a “century- Motors Ltd by Hero Corporate Service Ltd.
long trend of growth from emerging Bain Capital and Government of Singapore
markets.” Investment Corporation paid $838.59 million for
this transaction.
This a thought shared by Frontier Markets Capital.
In Indonesia, Reuters reported that Boy Garibaldi
Hong Kong is becoming the new IPO hub Thohir, the chief executive of the country second
for Private Equity liquidity. The company was biggest coal miner Adaro Energy, has teamed
planning to only raise HK$200 million, Milan up with a group of investors TPG Capital
Station’s IPO was oversubscribed 2,180 times. to buy a 45 percent stake in BFI Finance
Its shares surged by 77 percent at one point on Indonesia worth about 164 million.
its first day of trading on May 23, and closed with
a gain of 65.8 percent. The purchase includes Jakarta-based private
equity fund Northstar Equity Partners
In June PE firm is following the trend with the TPG was part of a consortium that invested in
IPO of Samsonite on the Hong Kong Exchange. an Indonesian coal contractor late last year.
Intense competition for deals in hot markets like
Still in Asia, another sign of the market gaining China and India means global buyout shops like
activity is South Korea’s CJ Group and Japanese TPG, CVC, the Carlyle Group and Blackstone are
private-equity firm Unison Capital who are increasingly pushing into fast-growing markets
jointly bidding for Japanese food-additive maker like Indonesia, Malaysia, the Philippines and
Hayashibara. Vietnam, as they hunt for investments.

5. The move for BFI, which finances car, motorcycle Emerging markets food sector is extremely
and heavy equipment purchases, is the latest attractive right now. Investors and analysts
investor deal to tap the fast-growing consumer salivated at the chance to get in on Latin
market in Southeast Asia’s biggest economy. America’s booming fast-food market. According
to Euromonitor, between 2010 and 2014 the
In Vietnam Private Equity investors with industry is expected to grow 19% in Argentina,
a positive outlook for the coming year fell to 27% in Brazil, 26% in Chile and 31% in Colombia.
53 % in the second quarter from 81% last And Arcos Dorados has leading market share in
year, Grant Thornton said in a report today. all of them.
The survey conducted in the second quarter of The industry faces massive challenges
this year canvassed the opinions of over 800 in emerging markets, social unrest,
decision makers based in Vietnam or those having strikes and revolutions, environmental
a significant focus on Vietnam. liabilities, and regulation hurdles. The last
in date is in Chile where regional environmental
Vietnam’s economy may expand 6.5% this authorities rejected the construction of a
year, down from a 6.8% last year. Consumer $1.1 billion hydroelectric project linked to
prices rose 17.51 percent in April from a year local private-equity fund Southern Cross.
earlier, the fastest pace in 28 months. The dong
has been devalued four times in the last eighteen However, private equity deal making has proved
months, most recently in February. resilient, even if fundraising volumes are still
well below the levels witnessed up to 2009.
“Sentiment has decreased toward Vietnam
as a preferred destination,” Ken Atkinson, The last example of resilience in the market
managing partner at Grant Thornton Vietnam, is in Africa where Kenya-base Insurance
said in the study. “This is consistent with the Company of East Africa (ICEA) has teamed up
uncertainty in Vietnam’s economy.” with Imara Securities, a Botswana investment
group, and the Norwegian Investment Fund for
Developing Countries (Norfund) to launch a new
$100m private equity fund for SMEs in East and
Central Africa.

6. PRIVATE EQUITY FUNDS
INVESTMENT IN
FRONTIER MARKETS
making sense of the recent trend
• We stay in Africa. Teraco Data Environments, • We think Africa has provided that and will
South Africa’s only provider of vendor neutral continue to provide that, in part, because we feel
colocation data centres, announces the that the supply and demand equation is still quite
completion of a R158 million ‘Series C’ financing. favorable for investors in Africa. “ With seven
The financing includes IFC, the Development funds and over $1.8 billion under management,
Bank of Southern Africa, Treacle Private ECP is a leading private equity manager focused
Equity, Pentangle Group and Marlow Capital. exclusively on Africa.
Still in South Africa Brait, the largest private Nigeria is still a difficult place to conduct
equity company said earnings fell 6 percent to business, a private equity firm, Helios
174.8 million rand ($26 million) in the year ended Investment Partners, backed by George Soros
March. Total assets under management rose and Madeleine Albright, is currently in a dispute
by 1 billion rand to 14.6 billion rand when with the Nigerian government over mobile phone
compared to the year earlier. towers in the country.
Helios Towers has filed a $250 million suit
Hurley Doddy, co-chief executive officer and against Multi-Links and Telkom in Lagos,
founding partner of Emerging Capital Partners being the money accrued for the use of its
(ECP), declared in a recent interview for africa. telecommunication masts for the past three
com; years.
“I think both the experience of private equity
firms like ECP and also the experience with Multi-Links, owned by South Africa’s Telkom, told
foreign direct investment has shown that African Helios Towers that it is under no obligation to pay
returns are comparable to returns anywhere rent or a termination fee years after the masts
in the world and we think that that is going to were built. The company is about three years
continue. Investors should look for growth into its 10-year contract.
and for that growth to translate into good,
risk-adjusted returns.

7. • In Mauritius- Aloe Private Equity, seeks to • TPG Capital’s sale of Turkish spirits
raise as much as 350 million euros ($501 company Mey Icki Sanayi ve Ticaret to
million) to invest in Asian companies developing spirits giant Diageo for $2.11bn in February
environmental technologies. The company is the most recent deal to be completed in the
expects to close in the third quarter the first country. The EBRD and the European Investment
funding round for its Aloe Environment Fund III Bank, and other multi-lateral institutions provide
with capital commitments of about 100 million the majority of the funding.
euros, according to Vivek Tandon, co-founder
and general partner at Aloe. According to Business week, Cukurova Holding
AS, the Turkish company seeking to retain control
According to Bloomberg, it expects to investment of Turkcell Iletisim Hizmetleri AS., the country’s
in eight to 10 companies in fields such as waste biggest mobile-phone operator, may sell assets
management, recycling, water and energy to pay about 1.7 billion liras ($1.1 billion) in back
efficiency that want to expand into Asia, Tandon taxes and fines.
said in an interview yesterday.
Cukurova is in talks with private equity
In Eastern Europe, some deal activity recently funds KKR & Co. and TPG Capital on the
with the Swedish private equity company Ratos sale of as much as half of its entertainment and
AB buying the movie operations in Finland, news television channel Show TV, according to a
Estonia, Latvia and Lithuania of the Finnish media person familiar with the matter. Istanbul-based
company Sanoma Group for EUR 116 million. Cukurova would aim to retain control of the
channel’s management after any sale.
In Turkey, crescent capital raised $100mln
on its final target of €200m. Mediterra Capital
Management, raised €100m at the first close of
its own €250m fund. The last major fundraising
was Actera Partners closing its buyout fund at
€325m in December 2007. According to Preqin,
there are six domestic buyout firms fundraising
in Turkey, including Mediterra and Crescent,
seeking an aggregate €1.1bn.

8. • Today, Investments go both ways as China •
Development Bank is in talks to to buy
a minority stake in San Francisco-based Frontier Markets Capital is a New York
private equity fund TPG Holdings, but said based company specialized in Research and
the deal requires government approval. Consulting on Frontier Markets. Frontier
Markets Capital serves Private companies,
Financial Advisers, Private Equity General
In Italy it is Mandarin Capital Partners and Partners and Limited Partners, Fund
Italian textile group Miroglio that have entered managers, and broker dealers as they
in a 40 million deal, part of a broader $700mln envision to work in these risky but rewarding
investment in Italy’s fashion sector. destinations..
Vancl, the Chinese online store, which has
received backing from private equity and venture
capital firms including IDG, SAIF Partners,
Ceyuan Ventures and Qiming Venture Partners,
is planning the largest Chinese Internet listing
in the United States this year, the $1bln IPO is
expected to hit the market in the fourth quarter.
•
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