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.