| HONG KONG
HONG KONG Investment firm Oaktree Capital Management said it is looking to help Chinese companies acquire brand-name companies in the United States.
Many Chinese companies, starved of capital by tumbling stock markets and turmoil in the credit markets, are looking to private equity firms to help them finance their global expansion.
"It's probably the first time that Chinese companies have had a window of this magnitude into the U.S. market to buy companies with attractive assets, like a brand name," said Bill Kerins, a senior investment professional at Oaktree, during the Reuters Hedge Funds and Private Equity Summit in Hong Kong.
The stars have aligned according to Kerins, noting the weak dollar, a rising number of distressed U.S. companies in need of capital and a fall in U.S. share prices.
Los Angeles-headquartered Oaktree has about $1.5 billion of firepower that it could draw upon from its global funds if it finds attractive opportunities.
Globally, Oaktree has invested over $52 billion in areas such as distressed debt, private equity and real estate as of December 2007. Now the time looks ripe for more deals in Asia.
Mainland China eclipsed the United States as the world's biggest market for initial public offerings last year.
The IPO flood, which saw many deals massively oversubscribed by frenzied investors, appeared to be a major achievement of China's financial reforms, for the first time making the stock market an important source of funding for many companies.
Investment banks helped hedge funds and private equity firms invest in the Chinese companies just prior to their IPO, the idea being they could cash out later in the public markets with big profits. Now those investors are sitting on stock with no exit in sight after sharp falls in the Hong Kong and Shanghai stock markets.
The volume of IPOs and other equity issuance in Hong Kong dropped to $269 million in the first financial quarter of this year from $4.5 billion in the same three months of 2007, according to data providers at Dealogic.
About $6.7 billion worth of Chinese IPOs have been pulled so far this year by companies such as China Pacific Insurance Group and Everglade Real Estate Group according to researchers at Thomson Financial.
"Right now there is a lot of inventory held by investors who expected to flip companies at big premiums within six months or so," said Kerins, sat in Oaktree offices overlooking Hong Kong harbour.
Oaktree sees the sweet spot for investments in Asian companies at $50-$150 million.
A Chinese company could issue stock to Oaktree, which may then use the money raised to buy a company in the United States. Oaktree's network in the United States could help identify targets, including companies in distress.
A hitch in this rosy scenario is price. Many Chinese entrepreneurs have been wooed by investment banks with dreams of floating on the stock exchange at fabulous valuations. It has been hard for many to adjust to the harsh new reality of financial markets.
Another snag has been the shoddy paperwork done by investment banks and hedge funds preparing some companies for an IPO. Many key items in contracts that a private equity investor such as Oaktree would expect to see, including some control over the future of the company, were absent.
This means any private equity investor would be loathe to just take over the positions of hedge funds - but would want to overhaul previous agreements.
Also many of the companies were too young for an IPO.
"A lot of companies weren't ready for prime time," said Kerins.
Oaktree established its presence in Asia in 1998 and now has offices in Tokyo, Singapore, Hong Kong, Beijing, Seoul and Shanghai. Last year Oaktree bought the world's top golf club maker, Fu Sheng 1520.TW, for about $1 billion including debt.
Oaktree has also bought a stake in the Bank of China (3988.HK) as part of a syndicate, and Asian leisure property resort Macau Studio City.
(Editing by Kim Coghill)