Baring PE Asia chief flags challenges in China, India

Hong Kong-based Baring Private Equity Asia has around $9 billion under management, 70 investment staff and seven offices across the region. It closed its sixth fund at $4 billion in February last year, and in January US-based fund house AMG bought a 15% stake in the firm.

Founder and chief executive Jean Salata is responsible for all investment and divestment decisions as well as its strategic direction. He spoke to AsianInvestor recently – the full interview will appear in the February issue of the magazine.

What are the main obstacles you see for PE investment in Asia right now?
In China, the main challenge is regulation. There are different rules as to who can invest in which types of markets depending on whether you’re local or not local. This makes it difficult to invest in some areas.

Then there’s the issue of exiting through the A-share market. While it’s possible for a foreign investor, it’s pretty cumbersome. It involves very long lockups and a lot of opaqueness around getting approvals.

Both of these factors increase the risk of any investment you make where you’re contemplating an onshore exit in China.

That’s why we tend to focus on businesses that we can control or sell through trade sales or take public in Hong Kong, and on sectors with zero restrictions on foreign investment. For example, consumer product businesses are generally fine.

Likewise in India, the challenge is around regulation and government approvals. Even once you’ve struck a deal, getting all the necessary consents to get paid can take a year or more. Last July [French bank] BNP Paribas agreed to buy Sharekhan, an Indian brokerage that we have shares in, but the deal is still pending regulatory approvals.

But India seems like it’s become more investor-friendly with Narendra Modi in power – do you agree?
We’re generally positive on India, we think it has a bright future. We’ve been big investor there in the past few years. For example, we bought a controlling stake in [outsourcing provider] Hexaware in 2013 and acquired CMS Info Systems [Indian’s largest cash-management firm] in 2015 for about $300 million.

Certainly the Modi government is much more business-friendly [than previous administrations] and there are some very enlightened people in government. They are saying the right things and have the right frame of mind.

But as you get deeper into the hierarchy of the bureaucracy, there are still entrenched parts of the government that have a certain job or mandate they need to perform, and that can be a hurdle.

The intention is there at the highest levels to encourage investment, but there is still a lot of work to be done to translate this into a smooth process for investors.

Are Asian corporates more open to PE investments now than in the past?
It varies country by country, but generally yes. For example, in Japan I would say it’s less embarrassing than it used to be to sell a business to a private equity firm. It’s now viewed as a normal part of restructuring or streamlining a business.

And in places like China, the big state-owned enterprises [SOEs] have a policy of bringing in market-oriented investors – as they call them – into joint deals.

It’s not because the SOE needs your money, but more to have an investor with money at risk in the same deal and to bring in international management expertise and practices.

We’ve done a few of these ourselves. We acquired a 40% stake in [UK cereal maker] Weetabix last year and are working with [Chinese SOE] Bright Foods, the controlling shareholder, to expand Weetabix in China.