DEALTALK-SE Asia M&A could hit record this year but greed a risk

* Singapore, Malaysia, Thai corporates to invest abroad
* Indonesia could see inbound deals, high price a deterrent
* Resources, retail and finance are hot sectors
* Sellers reluctant to part with prized assets even at top prices
* Value of deals could exceed 2007 record of $132.8 billion

The value of deals involving Southeast Asia looks set to top the boom of 2007 as the region's fast-growing economies attract investors and cash-rich companies snap up overseas targets to drive growth.

Foreign investors are finding it easier to strike deals in Singapore, Thailand and Malaysia compared to India and China, where companies and buyout firms have sometimes struggled due to high valuations and restrictive ownership.

But the reluctance of some sellers to part with prized assets even at high valuations is a big risk for larger deals in Southeast Asia, especially in red-hot Indonesia where some recent retail deals have failed to take off.

"Regional companies are in a very strong cash position and global players are more eager than ever to gain exposure to Southeast Asia's compelling fundamentals through purchasing assets here" said Helman Sitohang, a managing director at Credit Suisse in Singapore.

Malaysia's biggest lender, Maybank , kicked off 2011 with a $1.4 billion offer to buy Singapore broker Kim Eng , a reflection of what could come this year as regional companies seek growth outside their home markets.

Sectors such as natural resources, financials, real estate, as well as telecoms, media and technology are expected to be the most active in this region, said Giles Ong, managing director for Southeast Asia's mergers and acquisitions at Citi Global Investment Banking.

Indonesia -- the biggest economy in the region -- is opening up, attracting multinationals and private equity firms in retail, finance and the resources sector. "The high valuations in Indonesia should encourage sellers to sell their assets. As for the buyers, if they are considering to invest for the long run, this should not be a problem," said one senior analyst at a European investment bank based in Jakarta.

"Some of these buyers are coming to Indonesia to get a bigger market, for example in retail or financial sectors, while those coming to resources sector, they are here to secure raw materials for their productions," said the analyst who was not authorised to speak to the media.

Bankers say dealmaking in the region could exceed the record 2007 level when Southeast Asian companies were involved in $132.8 billion worth of deals, spurred by a jump in outbound activity, according to Thomson Reuters data. 

"I think the flow of deals will be much more balanced. Asian companies will look overseas more than they have been doing historically but I don't think the flow to this region will stop," Sitohang, who co-heads Credit Suisse's investment banking division in Asia.

CASH HOARD

Singapore could see more outbound deals as some of its large telecom, resources and energy firms are sitting on big cash piles that could be used for M&A overseas, bankers said.

These companies also have the firepower of state investor Temasek, which manages $134 billion and holds significant stakes in Singapore Airlines , Southeast Asia's biggest bank DBS and Singapore Telecommunications . 

 

Bankers said that Singapore companies, the most cautious in the region, could be more active now as signs emerge that the global economy is recovering, making this the right time for firms to reduce their cash pile. 

Resources' companies such as Wilmar , the world's biggest listed palm oil firm, and Olam also want to increase their plantation areas through acquisitions and are diversifying into new commodities. 

Armed with $6.2 billion cash, Wilmar is in the process of building up its sugar business, which could take them as far as Brazil, following a $1.5 billion acquisition of Australia's Sucrogen last year. 

In Thailand, energy and resources companies such as PTT group , top coal producer Banpu and power producer EGCO , have enough cash for acquisitions and are expected to keep buying new energy sources and assets overseas. 

"The stronger baht has created great opportunity for Thai firms. Although, the currency is now slightly weaker, it should not stop the plans as making M&As should focus on synergy rather than costs," said an investment banker from a major Thai bank who declined to be identified. 

Malaysia's plan to turn the country into a high income economy is likely to drive acquisitions, particularly from government-linked corporations. State investor Khazanah set the ball rolling last year with its $2.6 billion deal to buy Singapore-listed hospital operator Parkway . 

"We expect a spate of M&As, domestic and regional, and privatisation activity due to low leverage levels, easy access to relatively low funding rates, and government leaning on the private sector to spur the economy," said Haizan Johari, UBS' head of Malaysia equities.

And companies which held back on expansion during the recent financial crisis are unlikely to reward shareholders with larger dividend payouts in the near term due to better business opportunities in Asia. 

"I don't think many companies will return excess cash to shareholders as there are still a lot of opportunities for growth in almost all sectors," said Credit Suisse's Sitohang.Source: Reuters