Date: Mon, 6 Apr 98 22:45:56 CDT
From: email@example.com (Rich Winkel)
Subject: ECONOMY-ASIA: Fat Times for Corporate Scavengers
/** ips.english: 520.0 **/
** Topic: ECONOMY-ASIA: Fat Times for Scavengers **
** Written 7:28 PM Apr 1, 1998 by newsdesk in cdp:ips.english **
Copyright 1998 InterPress Service, all rights reserved.
Worldwide distribution via the APC networks.
Fat Times for Scavengers
By IPS Correspondents
29 March 1998
WASHINGTON, Mar 29 (IPS) - Corporate scouts, circling like
vultures over Asia, are hunting for economic bargains with a
potential for profit.
In the past nine months Asian firms of all shapes and sizes
have stumbled and crumbled, first as a result of foreign debts
that ballooned as local currencies plummeted then under the weight
of international bail-outs that resulted in soaring interest and
unemployment rates and falling domestic demand.
Governments, corporations, and citizens are striving to cope
with the economic and social fall-out of the region's financial
woes - especially in Thailand, Indonesia, South Korea, and the
Philippines, which have agreed with the International Monetary
Fund (IMF) to undertake or deepen structural changes in their
One of the IMF's central demands has been that countries open
domestic industries and financial markets to foreign ownership and
management. The benefits of this are supposed to include new
inflows of much-needed capital - chiefly in the form of mergers
and acquisitions led by Western investors, from multinational
corporations to opportunistic 'vulture funds'.
Known colloquially as 'vultures', investors in distressed
assets "pilot their funds through the rocky shoals of corporate
bankruptcies, buying up depressed bank debt or defaulted junk
bonds on the cheap, betting that the turn-arounds of bankrupt
companies will increase their value," explains analyst Gregg
U.S. investors, who prefer the label 'recovery funds', have
assembled resources to invest in distressed Asian companies and
other assets that lost value as local currencies fell.
Bankers Trust is reported to have assembled a one-billion-
dollar fund. Insurance specialists American International Group
(AIG) late last month revealed plans to team up with other firms
to raise another one billion dollars. Investors are looking to
pool their capital because the investments being eyed are very
diverse and spread across a wide area. The opportunities - and the
risks - could overwhelm smaller funds, according to market
These funds are expected to concentrate on acquiring loan
portfolios from troubled banks looking to reduce their assets; and
purchasing equity stakes in cash-strapped companies that could be
restructured and sold as markets recover.
Bank loan portfolios are particularly attractive to distressed
investors because they represent an opportunity to acquire
substantial debt investments in Asian companies. Later, investors
can opt to sell the debt at a mark-up or convert it into equity -
or shares - in the companies themselves, depending on how well
they perform. One way to drive up the apparent value of a company
is to trim its costs - chiefly, labour.
"Despite the job loses that accompany these situations,
vultures can hardly contain their glee," according to Wirth.
Investors said 'recovery' was a better label than 'vulture'
because their investments were meant to bring moribund Asian
enterprises back to life.
"Seeing some of their most ambitious ventures sold off may be
a humbling experience for East Asians. But when the restructuring
is complete, the rationalisation of overbuilt industries and the
influx of foreign capital should put the region on firmer
footing," argued the magazine Business Week.
Despite the many risks currently associated with Asian investing,
opportunities there were "breath-taking," it declared. Through
mergers and acquisitions, "Asia's crisis gives (U.S. companies) a
chance to grab strategic ground - on their own terms - in
economies still expected to be among the world's biggest growth
markets in the twenty-first century."
Business week added that, "with a nudge from the International
Monetary Fund, more opportunities may soon be available. The IMF
is pushing an overhaul of investment rules in Korea, Indonesia,
and Thailand as a condition of financial aid, and that should make
more broad restructuring less difficult."
South Korea has promised the IMF it will let foreigners buy
land, launch hostile takeovers of domestic firms, and increase
their holdings in public companies to one-third, up from 10
percent, without having to seek management approval. Similar
concessions could emerge in Indonesia, if President Suharto sees
through a commitment to dismantle monopolies held by his family
South Korea's Samsung Business Group, Indonesia's Salim and
Thailand's Charoen Pokphand are among leading conglomerates now
looking to boost their liquid assets by selling subsidiaries in
industries including automobiles, chemicals, and finance.
Last year, deals in East Asia were few and small and their
estimated value - 52 billion dollars - amounted to only three
percent of all deals worldwide, according to the trade publication
'M&A Asia'. That could be changing. A recent survey of U.S. and
European multinationals found that 64 percent planned to step up
In February, U.S. brokerage Merrill Lynch bought 30 branch
offices - and 2,000 employees - from Japan's bankrupt Yamaichi
Securities for a reported 300 million dollars. Southern Co. has
bought control of Hong Kong power-plant operator CEPA for 2.1
billion dollars. U.S.-based hotelier Marriott bought up the
Renaissance Hotels division of Hong Kong's New World Group for one
billion dollars. Coca-Cola guzzled up Korean Doosan Group's
bottling unit for 432 million dollars.
GE Capital of the United States has acquired all of GS Capital
of Thailand, which specializes in auto financing, and 49 percent
of consumer financing firm Asian Finance Public Company. Such
moves could prove especially strategic - car-makers Ford and
General Motors are planning major expansions in Asian automobiles
and consumer goods.
Not all bargain-hunters are from the West, however. Prince
Alwaleed bin Talal, a Saudi investor, in the past four months has
bought stakes in Malaysian car-maker Proton, Singapore's HPL
property group, and South Korea's Daewoo conglomerate, or
"When Asia comes back, and it will, it's going to be even
stronger than it was before this crisis," Alwaleed told the
Asian firms have been active, too. Hong Kong's First Pacific
Co. sold its cellular division to Hong Kong Telecom for 350
million dollars. Singapore's DBS Bank is buying Thai Danu Bank
Public and the Philippines' Bank of Southeast Asia.
While investors jostled for maximum advantage from an eventual
recovery, Asian workers and consumers had yet to see how foreign
and local ownership compare. Also to be seen was how the vultures
in particular would emerge.
As a rule, vultures ail when stock markets thrive - because
otherwise insolvent companies have easy access to capital either
from the stock market or from banks. From 1992 to 1994, relatively
lean years for the market, distressed funds enjoyed returns about
three times greater than the benchmark 'Standard and Poors 500'
index. In the first three quarters of 1997, however, they made
about 15 percent, compared to slightly more than 25 percent for
the bullish 'S and P 500'.
However, 1998 has brought vultures new hope that "the Asian
crisis, or something else, is about to cripple the global economy
and make their business sweet again," Wirth wrote in the 'Left
Business Observer.' (END/IPS/aa-amy-js/mk/98)
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