CLSA Capital builds war chest for Asia property

HONG KONG: Private equity house CLSA Capital Partners is building a war chest to invest in property in Japan, China and India next year, expecting cheaper deals, and will pour more money into firms it sees as recession-proof.

Mosquito coils, ceiling fans and light switches were the type of “things you can touch” that CLSA Capital sought out as it supplied venture capital for Asian manufacturers, and its chairman, Richard Pyvis, said he wanted more of the same.

But the firm has about US$100 million to spend on property, freed up by divestments last year, and is looking to raise more money for a region-wide property investment strategy.

“We’ve got a war chest but we’re unlikely to deploy it until next year, until real estate prices settle down,” Pyvis told a media briefing in Hong Kong.

“I wouldn’t want to be sitting on a long real estate portfolio right now.”

Pyvis would not give details of planned funds, citing regulatory issues, but saw few difficulties in capital raising for long-term, closed-end funds despite the turmoil in financial markets.

He said one of CLSA Capital’s open-ended funds, for investment in clean resources, had “one or two minor" redemptions, but that these had been off-set by new subscriptions.

CLSA Capital, which has about US$2.5 billion under management, would look to buy old buildings and refurbish them in Japan, as well as build top-notch office blocks in the biggest cities in India and China.

“Japan is certainly going to be very interesting next year,” Pyvis said. “As inflation comes into the equation, it will flow into real estate.”

With banks scaling back on loans to the property sector, second-grade buildings in Tokyo have seen a drop in values, sending rental yields up by as much as 100 basis points in the last year.

In China, land prices have dropped thanks to government austerity measures, including a clampdown on lending to developers for land purchases and the introduction of various taxes to deter speculation.

And Indian property prices have also fallen as much as 25 per cent this year after a surge since 2005, because of overbuilding in some areas and a funding crunch for developers.

CLSA Capital, part of the Asian investment banking arm of French lender Credit Agricole, would invest more in companies considered the most immune to a global economic slowdown, Pyvis said.

He cited past investments in a Chinese firm that made fire engines, in a manufacturer of eyedrops for conjunctivitis, and in an Indian firm that produced the oil for transformers used on the country’s fast-growing power grid.

“There’s no question we’re seeing a slowdown, and there are going to be some sectors that are losers,” he said.

“So our investment rationale is very simple: the old economy, domestic growth and demand, things you can feel and touch.”

Pyvis said he expected a CLSA Capital fund that provides mezzanine financing to flourish after a rise in the cost of debt and share market slides.

The fund had found it difficult to source deals, he said, but companies were now keen on mezzanine funding.

“Because there’s been a great delineation in the prices of debt and equity, mezzanine is really coming into its own,” he said.

By Reuters