TAIPEI (Reuters) - Morgan Stanley (MS.N) expects M&A deals to rise in Taiwan this year as buyout funds seek value in one of Asia’s cheapest markets, and bets more Taiwan consumer firms will list in Hong Kong to tap growing demand in China.
“Lots of private equity funds are interested in Taiwan banks. Small- to mid-sized banks are making efforts to find foreign buyers to bring in funds,” Gary Kuo, chairman of Morgan Stanley Taiwan, told Reuters in an interview on Wednesday.
“As much as US$3-4 billion of M&As will be completed involving some of the lenders,” he said.
Ta Chong Bank 2847.TW and EnTie Bank (2849.TW) have both been courting foreign buyers.
Taiwan banks, whose shares have underperformed in the region amid a consumer credit crisis that has largely abated, are the top targets attracting buyout funds.
Powerful private equity houses, including the Carlyle Group CYL.UL, MBK Partners and Newbridge Capital NB.UL, have invested hundreds of millions of dollars since 2006 buying stakes in Taiwan lenders and cable TV operators.
Kohlberg Kravis Roberts & Co. KKR.UL will buy US$230 million worth of convertible bonds issued by Taiwan electronics parts maker Yageo (2327.TW) for a 16 percent stake, Yageo said on Tuesday.
Banks in Taiwan trade at roughly 1.2 times forecast book value, while Hong Kong financial firms trade at about twice that level.
Morgan Stanley expects Taiwan consumer firms to seek listings in Hong Kong’s booming IPO market to take advantage of the huge Chinese market.
“Taiwan is a significant player in China’s domestic consumption market,” Kuo said. “The huge success of Belle’s 1880.HK IPO has prompted many Taiwan firms doing consumer business in China to do their IPOs in Hong Kong into 2008.”
The share sale of China’s top women’s shoe retailer, Belle International Holdings 1880.HK, recently attracted record demand from Hong Kong’s retail investors.
Taiwan’s top food conglomerate, Uni-President Enterprise (1216.TW), was considering a US$300 million Hong Kong listing for its China unit, sources have said.
Hong Kong has emerged as a popular listing home for Taiwan firms looking to get around local rules limiting their investment in mainland China to 40 percent of their net worth.
The Wall Street firm sees growing potential for Taiwan’s overall M&A market, and for investment banks as well.
“M&A activity only accounted for about 2 percent of Taiwan’s GDP last year, much smaller than 7-8 percent for Asia, 20 percent for the U.S. and 16-17 percent for Britain,” said Kuo.
“There are plenty of business opportunities out there to keep every investment bank busy,” he said, adding the firm is working on a number of opportunities.
Morgan Stanley ranked the No.1 M&A advisor in Taiwan last year, completing six deals valued at US$3.38 billion, according to data compiled by Thomson Financial.