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Global Funds Targeting Southeast Asia Infrastructure Deals

A healthy pipeline of deals could make Southeast Asia a rare bright spot for global funds as they grapple with rising finance costs and slumping markets.


Infrastructure projects such as this toll road in the Philippines are being eyed by major private equity groups and asset managers are geopolitical tension and other factors turn some buyers away from China, bankers and lawyers say.
Infrastructure projects such as this toll road in the Philippines are being eyed by major private equity groups and asset managers are geopolitical tension and other factors turn some buyers away from China, bankers and lawyers say. Reuters file photo.

 

Mergers and acquisition deals have risen in Southeast Asia this year, with asset managers and buyout firms eyeing big infrastructure projects in countries such as the Philippines and Indonesia.

Billion-dollar projects and assets in a region that offers strong growth prospects and stable long-term returns has enticed global interest, bankers and analysts say.

A healthy pipeline of deals could make Southeast Asia a rare bright spot for global funds as they grapple with rising finance costs and slumping markets.

The industry is also flush with potentially available assets, after a boom in infrastructure development fed by rapid economic growth.

Telecom operators including PLDT in the Philippines and Indonesian carriers, struggling with tight margins and burdensome debt, have done sale and lease back transactions for thousands of cell-phone towers.

“Southeast Asia is a highly sought-after market given the compelling growth outlook for infrastructure assets,” Ee-Ching Tay, head of investment banking for Southeast Asia at Barclays, said.

About 210 deals targeting Southeast Asia’s industrial and telecoms sector have been announced so far this year, exceeding the 184 from the same period a year earlier, Refinitiv data shows.

That contrasts with a 9% drop across all sectors in the region, although deal value in the sector has declined.

Last year was a record for the sector, with some blockbuster deals, and analysts say the near-term pipeline is strong.

Possibilities include the data centre business of Malaysia’s Time Dotcom Bhd, which has attracted bids from DigitalBridge Group and US data centre firm Equinix and could be valued at about $600 million, sources familiar with the matter said.

The sources declined to be named because the discussions were confidential. DigitalBridge declined comment, while Equinix and Time Dotcom did not respond to requests for comment.

 

 

Toll Road, Phone Towers

In another deal that could be worth up to $3 billion, sources familiar with the matter said last week that Canadian pension fund and buyout firms are among potential suitors for a toll road business put up for sale by CVC Capital Partners and its Hong Kong-listed partner with assets in Indonesia and China.

“Infrastructure assets are generally underpinned by long-term contracts, providing certainty of cashflows, which allows them to attract debt at high gearing to improve returns to investors,” said Gilles Pascual, who leads EY’s activities in Southeast Asian power & utilities sectors.

The region, with its relatively resilient economic growth, has attracted interest in contrast with other places facing slowdowns and even recession as policymakers battle inflation.

Indonesia, the region’s biggest economy, reported gross domestic product growth of 5.4% in April-June from a year earlier, the fastest in a year, while Vietnam grew 13.7% in the third quarter, its fastest pace in decades.

In contrast, the IMF pegs Asia’s overall economic growth at 4.2% this year.

“Favourable structural drivers such as local market reforms and rising urbanisation and consumption” have also fostered rapid growth in investment opportunities in recent years, said Michael De Guzman, a managing director at KKR‘s infrastructure team.

Analysts warned, at the same time, that regulatory and other risks remained, requiring investors to be discerning.

“Markets with the inability to offer a good pipeline of projects or lack of regulatory and legislative clarity can impede the ability to attract institutional capital,” Sharad Somani, KPMG‘s Asia Pacific head of infrastructure advisory, said.

There are still, however, plenty of signs that global funds are committed to the sector.

KKR said last month it had raised more than $4 billion for its latest Asia infrastructure fund, topping the $3.8 billion raised for its inaugural Asia Pacific fund, which completed fundraising in 2021 and had been the largest such fund in the region.

A number of big M&A deals have already been sealed in recent months, including record transactions in the Philippines.

In April, Edotco, the wireless tower unit of Malaysia’s Axita, and EdgePoint Infrastructure agreed to buy thousands of cell towers and related infrastructure from PLDT for 77 billion Philippine pesos ($1.35 billion).

PLDT rival Globe Telecom last month clinched a separate sale and leaseback deal for thousands of its towers with KKR-backed Frontier Towers and US alternative investment firm Stonepeak‘s associated investment vehicles.

 

  • Reuters with additional editing by Jim Pollard

 

 

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.

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