Southeast Asia—A New Hot Spot for Private Equity?


Global private equity firms are fast stepping up their focus on Southeast Asia, a region that boasts high growth, favorable demographics and rising consumer affluence.

Kohlberg Kravis Roberts (KKR), one of the world's biggest private equity firms with global investments totaling $61.5 billion, has sunk in $1 billion in Southeast Asian region since 2005, and is looking to more than double its investment over the next five years.

"Companies of all shapes and sizes need and want growth capital; we see tremendous opportunity in the region. Southeast Asia is our most active market in Asia after China," co-founder Henry Kravis said Thursday at a press conference in Singapore.

Southeast Asia has become increasingly ripe for private equity investment because of the region's steady growth, governmental stability and improving transparency, Kravis said.

The firm sees increasing opportunities from the region's robust domestic consumption, rapidly developing financial services industry as well as the commodities space, in particular palm oil, thermal coal and rubber.

Unlike in China and India which are home to hundreds of private equity firms, Southeast Asia's private equity market is at a nascent stage, KKR added, translating into lesser competition.

KKR, which is currently invested in Singapore and Vietnam, singled out Indonesia as the bright spot in the region, citing its strong economic fundamentals and improvement in its regulatory environment.

Other major players in the private equity space have also been seeking out investments in Southeast Asia. Washington-based Carlyle Group announced on Thursday it has made an investment into a publicly traded Indonesian telecom towers operator PT Solusi Tunas Pratama for about $100 million – its first investment in the region

KKR is in the process of raising money for its second pan-Asia fund, and has so far raised over $4 billion of the target $6 billion. Looking to strengthen its presence in the region, the firm opened its seventh office in the region this week, located in Singapore.

From Southeast Asia to Spain

Despite the debt crisis in Europe, Kravis said he sees "real opportunity" in a less sought after market, Spain, due to cheap valuations.

"We invest in regions when most people don't want to be there. With Europe going through difficulties, there's a real need for capital in countries like Spain," he said. "We're not writing Europe off in any way, we're putting money to work there."

The Spanish stock market is trading at a forward price-to-earnings ratio of 10.1, compared with 12.2 for the S&P 500.

Kravis said the firm is eyeing opportunities in Spain's financial, leisure and hotel, as well as the real estate sectors.

"They are selling things at cents on the dollar and we're looking at some of those opportunities," he said.