Asian investments "The dark side" / Economist

gold rush mentality........ unregulated trading, stakes without voting rights, paying premiums to the ipo price.....some of the players are obviously desperate to invest the excess cash.

goldgräberstimmung......nicht regulierte handelsbestimmungen, anteile ohne stimmrecht, kaufpreise über ipo preis.....klingt ein wenig nach verzweiflung bzw. heftigen anlagedruck.


For better or for worse, obscure private markets are booming in Asia

TWO years ago a flock of wealthy hedge funds and private-equity firms converged on Hong Kong and Singapore, sensing vast opportunities in Asia. They soon found a problem: where to put their money. Competition was so fierce for new listings that they had trouble getting a glimpse of them, let alone being allocated shares. They found it almost as hard to take part in buy-outs...

The result is a growing market in which hedge funds, buy-out groups and investment banks, club together to finance private deals for firms that are too small for initial public offerings, or are growing so fast that they would rather wait. Investments come mainly through an off-market convertible-debt-style security, paying interest....There are four common factors: unlike private equity, the investment does not give managerial control; the terms are set by private contract rather than public securities law; the timeline is finite—typically three years; and there is almost no public information on them.

The investment banks act as more than middlemen; they may also co-invest. Goldman Sachs has done 40 deals and taken stakes in each one. Deutsche Bank and Merrill Lynch have each done more than 20, worth several billion dollars

A few highly lucrative transactions first set the ball rolling. In 2005 Goldman and a group of private-equity firms made a $100m non-controlling investment in Suntech Power, a Chinese solar-energy company. A year later it floated and its shares have risen 15-fold...

>no wonder their trading and principal investment is making the main earnings source

>kein wunder das deren handelsgeschäft und beteilungsverkäufe den löwenanteil der gewinne ausmachen


As in most leveraged deals, abundant liquidity has given recipients of money a big edge over providers. Initially, equity was to be available at a discount to a public-offering price (assuming that there was to be an IPO); then it was to be at the offer price; now, it is at a premium to the offering price, which makes it a good deal only if the price of shares jumps a lot once they are issued. The interest rate companies pay has also fallen.

But those terms have not dampened enthusiasm. Investors have sought to spice up returns using a version of the “carry trade”—they have borrowed from Japanese banks at 1% to invest in deals that pay 7%. The early deals included strong legal protection, such as a stipulation that disputes would be heard in the courts of Hong Kong or Singapore. These have become less common as worries about what could go wrong have waned. At first, too, Chinese deals used a complex structure involving the transfer of ownership to the Cayman Islands, which made the process of putting in money, and getting it back, far easier. In September China put a halt to such transfers, though those agreed on before then are still going ahead.


Because the deals are opaque, there are no aggregate performance figures. Banks are loth to admit to losses but cracks are beginning to show. In one of the largest of these private deals, China's Asia Aluminum received more than $450m last year in debt and warrants; since then its ambitious expansion has suffered from delays and cost overruns, according to Moody's Investors Service, a credit-rating agency that looks at its publicly rated debt. In another large deal, APBW, a cell-phone company in Taiwan, received a large loan. In March the former chief executive of its parent company was indicted for embezzlement. Investors must be jittery.

Some disasters may well be lurking—if not with these companies, then others. Almost all today's transactions will mature between 2008 and 2011. Inevitably there will be tears; if the market for public offerings cools, expect howls.