FCPA: biggest barrier to SE Asian deals

Author: | Published: 4 Aug 2011
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Lawyers in Hong Kong expect private equity deals in south-east Asia to become increasingly difficult to implement. Enforcement of the US Foreign Corrupt Practices Act (FCPA) is a primary reason for this.

Growing political and economic stability in Indonesia, Malaysia, Thailand and Vietnam has led to mounting competition for deals in the region as private equity firms continue to retreat from slowing developed economies, and look to diversify their Asia portfolios.

The resulting influx of capital has led to higher regional asset valuations, and thereby a shortage of opportunities. But it is the increasingly hard line enforcement of FCPA in the region that lawyers expect to prove the biggest barrier to entry for international companies over the next few years.

“The FCPA is a big reason for global firms not to deals in south-east Asia,” said one general counsel at an international private equity firm. “And it is only going to become more of a pressure point as enforcement grows tougher and more focused on private equity funds.”

The FCPA was something comparatively new for the region’s fund management industry, he said. As such, companies in the region were scrambling to figure out how to comply. Many were starting to adjust to what criteria they were required to meet, he said. But there was still a lot of catching up to do.

“South-east Asia is likely to be the highest risk market for many private equity funds, as the investor market catches up with industry best practices,” he said.

Nonetheless, he did not think it was advisable for firms to completely avoid the region. “The hardest deals are the ones that make the most money,” he said.

Regardless of barriers to entry, the growth opportunities in south-east Asia still significantly surpass the opportunities elsewhere, said the general counsel of an Asia-focused private equity firm.

“The opportunities may be hard to find in a structural sense but once they are found, it is important to bear in mind that this is a very cyclical region,” he said. “There will be ups and downs, but Asia 25 years from now is going to be an immensely more mature and wealthier place than it is now.”

In the meantime, private equity firms entering the region should consider looking at assets in areas outside of difficult countries, advised another Hong Kong private equity in-house.

“It is important to ensure that if you had to seek any downside or protection, there are assets outside of high-risk jurisdictions, which are easier to go after,” he said.