Advice: Obtaining funding from Eastern markets
Q: Should I be looking for investors in Asia?
A: It is not news that Asian investors are among the most able to deploy capital these days. The region is likely to be an increasingly important source of capital over the next 50 years; in particular, Asian sovereign wealth funds (SWFs) have received a lot of attention as strategic investors in attractively priced western assets.
As growth slows in the West and investors continue to be defensive, however, US corporate officers ignore the capital markets in Asia at their own peril. Right now, Asian institutional investors are more cash-rich than their western counterparts, and are looking for focused, strategic investments.
As an example, Chesapeake Energy recently raised $5 bn from Singaporean SWF Temasek and Chinese private equity firm Hopu Investment Management Co, with the proceeds to be used to explore unconventional shale gas plays in North America. Expect to see more of this type of arrangement in future, with investors choosing a single partner for a single purpose: to advance corporate and government objectives.
In due time, the mindset will shift from strategic investment to more performance-based metrics. While large, private blocks of capital raised might be the trend for now, expect to see listings of depositary receipts on Asian exchanges by US-based multinationals, and more listing of Asian operating subsidiaries as stand-alone companies.
According to SEC registrations, Chinese corporations have raised $2.3 bn in 33 deals thus far in 2010, up 66 percent from 2009 and a new record. We can expect this trend to become more balanced or reverse entirely over the next five years as the capital markets in China mature and the exchanges develop into world-class platforms, including offering listing opportunities for corporations with no business footprint in China.
For US corporations, the next five years are critical to expanding their investor bases in Asia. Why? With increasing competition for capital, corporate boards and executive officers must plan their capital strategies into the next decade. Asian institutional investors are extremely sophisticated, and they are in no hurry to deploy their abundant capital in the West when so many promising opportunities exist in their own backyards.
If you believe the 21st century is even partially the Pacific Century, you should understand that it will take years to build relationships with Asian institutions – and you must start that process now. US corporations must plan for lots of face-time with Asian institutional investors – at least two multi-city trips per year – and should be conscious of important cultural differences. Once an investment is made, expect to do more relationship building: investors from the region are very long term.
Jay Plourde is executive director of CLSA Americas, the Asia-Pacific investment banking, brokerage and private equity arm of the Credit Agricole Group.