MBK sees allure in China buyouts

By Kim Soyoung

SHANGHAI (Reuters) - Buyout firm MBK Partners sees ample investment opportunities in domestically focused Chinese consumer and industrial firms as the world's fourth-biggest economy grows wealthier, but it is bracing for higher asset prices amid fierce competition and a roaring local stock market.

North Asia-focused MBK also expects more private equity-invested companies to exit through IPOs on China's surging local bourses as Beijing looks to mop-up excess market liquidity.

The recent turmoil in global credit markets, which has disrupted takeover deals in Europe and the United States, is more muted in Asia due to deep local-currency financing markets, Kuo-Chuan Kung, MBK Partners' co-founder and head for Greater China, said at the Reuters China Century Summit on Tuesday.

"If you borrow Asian currencies ... the market is very much open still," he said.

"If you go to international banks, it really is a case-by-case basis," he added.

MBK, created in 2005 by former Carlyle Group CYL.UL Asia Chairman Michael Kim and other executives of the U.S. fund, including Kung, is one of the most active buyout funds in Asia, targeting China, Taiwan, Japan and South Korea.

China has been a frustrating market for private equity funds, which are keen to turn around poorly run state-owned entities or invest in fast-growing industries, as Beijing has prevented deals involving a wide range of sectors it considers sensitive.

Buying controlling stakes has proven especially difficult, meaning buyout firms -- which typically seek control -- have had to be content with minority holdings in China.

MBK, which closed a $1.56 billion fund last year, has yet to make an investment in a Chinese company, although Kung said potential deals were in the pipeline.

"It's really a growth story in China. China's big and many industries are available," said Kung, adding that MBK was interested in big companies that are domestic market leaders.

"Three years ago it was difficult to find growth investment opportunities -- minority stakes in a company that would require more than $50 million," he said at the summit at the Reuters office in Shanghai.

Now, he said, "we're finally seeing sizeable companies coming up".

RISING VALUATIONS

China's benchmark Shanghai Composite Index .SSEC has more than quadrupled since the beginning of 2006. Sellers of companies are becoming more demanding.

"Is valuation going up because people tend to give a value to higher growth, or because of competition they are bidding up asset prices? A bit of both, frankly. Valuation going up is a fact that we have to live with," he said.  Continued...