Global funds show promise for infrastructure in Southeast Asia

Buyout firms and asset managers are eyeing billions of dollars in infrastructure assets in Southeast Asia, lured by the sector’s growth prospects and stable long-term returns, bankers and analysts say. analysts.

M&A deal volume has been on the rise in the sector since the start of the year, the data shows, and a healthy deal pipeline could make Southeast Asia a rare bright spot for global funds struggling with rising financial costs and collapsing markets.

The sector is also rife with potentially available assets, following a boom in infrastructure development fueled by rapid economic growth.

Telecom operators, including PLDT in the Philippines and Indonesian carriers, struggling with tight margins and heavy debt, have completed sale and leaseback deals for thousands of cellphone towers.

“Southeast Asia is a highly sought-after market given the compelling growth prospects for infrastructure assets,” said Ee-Ching Tay, head of investment banking for Southeast Asia at Barclays.

About 210 deals targeting Southeast Asia’s industrial and telecommunications sector have been announced so far this year, surpassing 184 in the same period a year earlier, according to Refinitiv data, in contrast to a down 9% across all sectors in the region, although the value of deals in the sector declined.

Last year was a banner year for the sector, with some spectacular deals, and analysts say the short-term pipeline is strong.

Opportunities include the data center business of Malaysian company Time Dotcom Bhd, which has attracted bids from DigitalBridge Group and US data center company Equinix and could be valued at around $600 million, sources say. well informed.

The sources declined to be named because the discussions are confidential.

DigitalBridge declined to comment, while Equinix and Time Dotcom did not respond to requests for comment.

In another deal that could be worth up to $3 billion, sources familiar with the matter told Reuters last week that Canadian pension funds and buyout companies are among potential suitors for a road company for sale by CVC Capital Partners and its Hong Kong-listed partner with assets in Indonesia and China.

“Infrastructure assets are typically backed by long-term contracts, providing cash flow certainty, allowing them to attract high-ratio debt to enhance returns for investors,” said Gilles Pascual, who leads EY’s energy and utilities businesses in Southeast Asia.

The region, with its relatively resilient economic growth, has attracted interest unlike other places that face slowdowns and even recession as policymakers battle inflation.

Indonesia, the region’s largest economy, reported gross domestic product growth of 5.4% in April-June from a year earlier, the fastest in a year, while Vietnam saw a growth of 13.7% in the third quarter, its fastest pace in decades.

In contrast, the IMF estimates overall economic growth in Asia at 4.2% this year.

“Favorable structural drivers such as local market reforms and increasing urbanization and consumption” have also spurred the rapid growth of investment opportunities in recent years, said Michael De Guzman, a managing director of the infrastructure team. from KKR.

Analysts warned, at the same time, that regulatory and other risks remained, requiring investors to exercise discernment.

“Markets unable to offer a good pipeline of projects or lack of regulatory and legislative clarity can hamper the ability to attract institutional capital,” said Sharad Somani, KPMG’s head of infrastructure consulting for the Asia-Pacific region.

However, there are many signs that global funds are committed to the sector.

KKR said last month that it had raised more than $4 billion for its latest infrastructure fund in Asia, surpassing the $3.8 billion raised for its first Asia-Pacific fund, which completed its fundraising in 2021 and had been the largest such fund in the region.

A number of big M&A deals have already been sealed in recent months, including record deals in the Philippines.

In April, Edotco, the wireless tower unit of Malaysian company Axita, and EdgePoint Infrastructure agreed to buy thousands of cellular towers and related infrastructure from PLDT for 77 billion Philippine pesos (1.35 billion dollars).

Globe Telecom, PLDT’s rival, last month entered into a separate sale and leaseback agreement for thousands of its towers with KKR-backed Frontier Towers and the associated investment vehicles of the American company. Stonepeak alternative investment. (Reporting by Anshuman Daga and Yantoultra Ngui; editing by Sumeet Chatterjee and Edmund Klamann)

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