INCJ And Japan Consortium To Acquire 75% Of Renesas

On December 10th, the Innovation Network Corp. of Japan announced that INCJ and the consortium of 8 leading japanese companies will acquire 75% of Renesas Electronics Corp  (6723) for JPY 150 billion (USD 1.79 billion). INCJ will acquire 69.2% of all outstanding shares, while the consortium of Toyota Motor Corp. (7203), Nissan Motor Co. (7201), Denso Corp. (6902), Keihin Corp.(7251), Panasonic Corp. (6752), Canon Inc. (7751), Nikon Corp. (7731) and Yasukawa Electric Corp.(6506) will own 5.8% in total.

INCJ In Talks With Sony For The Purchase Of Battery Operations

According to a Nikkei report, Sony Corp. (6758) has begun negotiations to sell its battery operations to the Innovation Network Corp. of Japan and  the government-backed fund has already proposed a price. Plans under consideration include Sony going ahead with a full sale as well as retaining a partial stake.
Taiwanese firm Hon Hai Precision Industry Co. has reportedly shown interest as well.

Advantage Partners To Buy Sanyo's Camera Business

Sanyo Electric Co. a subsidiary of Panasonic Corp. (6752), will sell its digital camera business to Advantage Partners. Sanyo spun off its digital camera and movie camera business section to Sanyo DI Solutions Co. in July this year to streamline operations. Sanyo and the special purpose company to be funded and managed by Advantage Partners entered into an agreement on the transfer of all the shares of Sanyo DI Solutions as of March 31, 2013. Financial terms are not disclosed.

An earlier report by The Nikkei said "The deal to sell all shares in Sanyo DI Solutions Co., along with its Indonesian factory, for an estimated several hundred million yen would close a chapter in the streamlining effort." "Sanyo's digital camera business manufactures products for Olympus Corp. (7733) and other brands on an OEM basis. Squeezed by the spread of smartphones sporting high-quality cameras, the market for digital compact models has shrunk. Sanyo's annual production has slumped to roughly 5 million units from a peak of 17 million, accounting for around 30% of global output at the time, with sales down from 220 billion yen in fiscal 2003 to tens of billions of yen. The business has apparently been mired in red ink."

Sony To Sell Battery Business

Sony Corp. (6758) is reportedly in talks with Taiwan's Hon Hai Precision Industry Co., as well as Japanese and foreign investment funds, for a potential sale of its battery business. The sale could be partial. Sony's battery business generated roughly JPY 142.5 billion (USD1.7 billion) in sales in the year ended March 2012.

According to a Tokyo research firm, Sony controlled 6.9% of the global market for lithium ion batteries in the April-June quarter this year, placing the company at fourth in the world after Samsung SDI Co., Panasonic Corp. (6752) and LG Chem Ltd.

Brightrust And 3 Other Parties Won Study Mandate From Japan's Largest Pension Fund

Japan's largest public pension fund, the Government Pension Investment Fund (GPIF) awarded "feasibility study"  mandates to  4 institutions including Brightrust PE Japan.  In August, GPIF solicited bids to conduct feasibility study on the USD 1.3 trillion fund's possible future investments in private equity, infrastructure and real estate. After a detailed selection process, the study mandates were awarded to 4 bidders.

Brightrust PE Japan submitted a proposal that aims to address various research topics that GPIF seeks to find solutions or deeper understanding before the pension fund formally contemplates private equity style investment programs. Capital Dynamics, T&D Asset Management and law firm Atsumi & Sakai were also given mandates for their respective areas of expertise.


Reuters – Japan’s GPIF to Conduct Studies for Alternative Asset Investment
Posted on: November 26, 2012

Japan’s Government Pension Investment Fund has selected four companies to conduct feasibility studies for its possible future investments in alternative assets, including private equity, writes Reuters. GPIF holds 108.2 trillion yen ($1.31 trillion) in assets.

Reuters – Japan’s Government Pension Investment Fund, the world’s biggest public pension fund, said it has selected four companies to conduct feasibility studies for its possible future investments in alternative assets, including private equity.

GPIF, which holds 108.2 trillion yen ($1.31 trillion) in assets, almost about the size of the Australian economy, is keen to diversify its massive portfolio to generate higher long-term investment returns.
The fund has been paying out more in benefits to pensioners than it receives in contributions to the national pension system since the 2009/10 financial year as the Japanese population is ageing rapidly.
GPIF has selected Japanese law firm Atsumi & Sakai, Swiss private equity fund firm Capital Dynamics, Japanese life insurer-backed asset firm T&D Asset Management and Tokyo-based independent private equity consultant firm Brightrust PE Japan for the feasibility studies.
They are required to complete their studies by end-March, 2013.
The results of the studies will be presented to the public and to the members of fund’s investment committee for review in the future, a GPIF official said.
GPIF Chairman Takahiro Mitani told Reuters in October that the public fund is considering whether to diversify into infrastructure, private equity and property, although not into hedge funds.
The fund has already diversified its assets by starting to invest in emerging markets equities earlier this year.
The fund makes allocations in line with its model portfolio, which currently gives a weighting of 11 percent to domestic stocks, 67 percent to domestic bonds, 9 percent to foreign stocks, 8 percent to foreign bonds and 5 percent to short-term assets.
The portion of emerging markets equities was allocated from GPIF’s foreign equities portfolio. ($1 = 82.3700 Japanese yen) (Reporting by Chikafumi Hodo; Editing by Muralikumar Anantharaman)  

CITIC Japan Will Sponsor Polymatech Rehabilitation

CTIC Capital Japan will acquire 100% of Polymatech Co., a manufacturer of polymer parts for electronics industry, as sponsor under the civil rehabilitation process. With the investment from its 2nd fund, CITIC Capital Japan will send a few directors to Polymatech and leverage CITIC Group's network to assist the company to restore growth. Polymatech has production facilities in Japan (Fukushima), China, Malaysia and Indonesia and has a strong market position in mobile, car and home segment applications.

For details, please see:
http://www.citiccapital.com/admin/data/PageContentPage/ContentPage/20121108161526/BOD%20of%20Polymatech%20Nov%209%202012.pdf

Japan To Invest USD 15 Billion In Indian Infrastructure Projcts

Japan aims to carry out 19 infrastructure projects totaling roughly JPY 1.2 trillion (USD 15 billion) in western India through a coordinated government and private-sector effort to help India to obtain stable supplies of industrial water and power and improve its transportation and logistics networks. The projects will form the core of the Delhi-Mumbai Industrial Corridor.

Prime Ministers of both countries are expected to reach an agreement on the plans in a summit meeting scheduled for Friday.

The massive investment program will consist of JPY 240 billion (USD 3 billion) for water-related facilities, JPY 200 billion (USD 2.5 billion) for next-generation grids and power plants and JPY 760 billion (USD 9.5 billion) for transportation and distribution projects.

Sanyo May Sell Its Digital Camera Business To A Fund

Sanyo Electric Co., a subsidiary of Panasonic Corp. (6752), is reportedly in talks to sell its digital camera business to an investment fund and the sale may be completed by the end of this year. 

Sanyo has no camera brand of its own, instead it supplies products on an OEM basis to several firms including Olympus Corp. (7733).  Its digital camera production reached about 11 million units in the year ended March 2011. 

While Panasonic has its own digital camera operations, the businesses have been kept separate and Sanyo spun off its operations in this July with an eye toward their eventual sale. 

Carlyle Japan Closed 2 Deals In 40 Days

Carlyle Japan announced that Carlyle Japan Partners II fund will acquire a 100% stake in Diversey G.K. (“Diversey Japan”) from Sealed Air Corporation (NYSE:SEE) for approx. JPY 30 billion (USD 377 million). Carlyle will sponsor the management buyout of Diversey Japan, which is expected to be completed in the 4th quarter of this year. Diversey Japan is a leading provider of cleaning, sanitation and hygiene products and solutions, mainly to institutional clients, with trailing twelve month sales as of September 30, 2012, of USD 321 million. Diversey Japan marks the 2nd deal for CJP II fund just in 40 days.

On September 25, Carlyle Japan announced that it had acquired the entire shares of Arizona-based engine component maker Walbro Engine Management from Sun Capital Partners. Financial terms were not disclosed. Walbro is the world’s largest manufacturer of carburetors in the lawn & garden market and a major manufacturer of ignition systems, fuel injection and air/fuel management components. It employs 2,200 people in the United States, Japan, Thailand, China and Mexico.

Sun Capital invested in Walbro in 2007 from its fourth fund. So far this year, Sun Capital has 7 realizations and Walbro is the 4th sale to a private equity firm. 

NTT DoCoMo To Set Up JPY10bn Venture Fund

NTT DoCoMo (9437) will establish a JPY 10 billion (USD 126 million) corporate VC fund, Docomo Innovation Fund, for investing in a wide range of fields, including the internet, healthcare, finance and media, by March next year. The firm will also institute a business incubation program. "DoCoMo Innovation Village" will pay development costs and provide office space and other infrastructure to promising projects.

While Docomo already has a VC fund in Silicon Valley,   this is a new effort for Docomo to focus on domestic ventures. Its parent NTT has two corporate venture funds. Its rival KDDI Corp. (9433) set up its own JPY 5 billion venture fund in February to invest in internet-related fields.

Panasonic May Look To Sell Its Cell Phone Business

Panasonic Corp. (6752) will consider selling the Japanese cell phone business or forming a partnership with another company, while it will end European operations as early as fiscal 2012, The Nikkei reported.

Panasonic currently sells mobile handsets in Europe and in Japan. Panasonic, lagged behind rivals in releasing smart phones, has already begun restructuring the business by shutting down its domestic factory in Shizuoka Prefecture and moving production to Malaysia. The cost of restructuring the mobile phone business may total JPY 100 billion (USD 1.25 billion).

The company sold 5 million smartphones and generated some JPY 130 billion in sales from the mobile phone business in fiscal 2011. Earlier it targeted tripling the sales volume to 15 million units in fiscal 2015.

As of July, Panasonic projected a net profit of JPY 50 billion (USD 630 million) for the current FY through March, a turnaround from the previous year's net loss of some JPY 770 billion.

Japan Post Plans To Go Public in 2015

Japan Post Holdings Co. will submit a plan for going public in 2015 to the minister for postal reform today. It hopes to receive approval from the postal privatization committee next Monday.

The Japan Post group has net assets of roughly JPY 11 trillion (USD 137 Billion). Under the plan, the government will sell 2/3 of its holdings in stages beginning in the autumn of 2015 and hopes to raise up to JPY 7 trillion.

The matter of selling shares in Japan Post Bank and Japan Post Insurance Co. -- the group's biggest profit earners -- has been shelved for now, while its money-losing postal services business needs to be turned around.

It is expected that the approval of the plan will pave the way for the Japan Post to expand into new businesses, such as mortgages. Commercial banks have been adamantly objecting the Japan Post to enter into their business territory as they see the condition for fair competition is hard to be ensured with JP's massive size and the government backing.

Nomura Plans to Set Up an India Infrastructure Fund

Nomura Holdings Inc. (8604) plans to launch an infrastructure fund focused on India as early as next year. According to The Nikkei, Nomura aims to raise USD 500 million for the fund from Japanese and Indian investors. The fund will invest in companies operating power grids, highways, airports and other infrastructure. The Indian government's latest five-year plan calls for USD 1 trillion in infrastructure development, with about half of this amount to come from the private sector.

Mizuho Financial Group Inc. (8411) unit Mizuho Corporate Bank and Mitsui & Co. (8031) started one targeting Asian infrastructure in 2008.

India's infrastructure has been one of the target sectors for Japan's ODA provided by the Japan International Corporation Agency (JICA), while a fund like this would suit the investment criteria of the Japan Bank for International Cooperation (JBIC) if structured as a private equity fund.

Yet Another Public-Private Fund ?

According to The Nikkei yesterday, "The government plans to set up a public-private fund to aid the development of innovative drugs targeting cancer, diabetes and other diseases that are difficult to treat."

 "Legislation will be submitted to the Diet next year to enable the public National Institute of Biomedical Innovation to raise long-term investment funds. The institute will work with such research organizations as Riken to find promising projects pursued by universities or individual researchers."

 "In addition to the government-backed Innovation Network Corp. of Japan (INCJ), financial institutions, pharmaceutical companies and venture capital firms are expected to contribute, with the fundraising target set at JPY 30-40 billion (USD 380-500 million) by fiscal 2014. Research on treatments using induced pluripotent stem cells, or iPS cells, will likely be covered by the fund."

This is yet another initiative taken by the Government to establish "public-private" funds. Politicians and bureaucrats must be seeing a public-private fund as a wonderful means to meet investment requirements of certain sectors in Japan without "explicit" budget allocations.

It would be fair to say that INCJ set the model, where the Government and and private companies contribute a small amount of capital, while most of the investable proceeds are funded by Government-guaranteed loans from banks. ETIC pretty much followed suit and its huge success in the JAL turnaround may have lead the policy makers to create more.

A bill to establish public-private infrastructure funds was submitted to the last Diet but it was not discussed due to the dicker between the leading party and opposition parties concerning the timing of the next election. The bill to establish public-private agricultural funds was passed with strings attached, which may hamper the original idea of encouraging free competition in Japan's agri-sector.

In the cases of infrastructure, agriculture and pharma funds, the Government expects the fund managers to raise substantial amount of private money by themselves. This is very tough, especially where there is an expectation for a degree of Government involvements.    

Japan's Trade Deficit Increases In September Due To Reduced Exports To China

Japan posted a JPY 558.6 billion (USD 7.0 billion) trade deficit in September.

Japanese exports fell 10.3% from the previous year in September to JPY 5.360 trillion (USD 67.7 billion), the fourth straight month of decline, after decreased 5.8% on year in August. 

Exports to China dropped 14.1% on year to JPY 953.8 billion (USD 12.0 billion) in September, sharper than the previous month's 9.9% decline and marking the fourth consecutive month of contraction. Exports of motors, cars and auto components declined significantly, down 48.7%, 44.5% and 17.5%, respectively.

Exports to the U.S. grew 0.9% from a year earlier, the 11th straight month of increase, but the weakest since January's 0.7% rise.

Japanese imports rose 4.1% from a year earlier to JPY5.918 trillion (USD 74.7 billion) after a 5.4% fall the previous month.

According to DJ, some analysts have estimated that decreased exports to China would bolster the chance of Japan's economy contracting for two straight quarters through December, a situation generally viewed as a recession. 

The increased risk of recession, in addition to the failure to meet 1% inflation target, will bring an increased pressure from the government to the BOJ to ease further. The BOJ is holding its policy meeting later this month.

Only 1% of Investors Think Japan Presents The Best Opportunities In Asia - Preqin Survey

Preqin's latest quarterly report has a survey on global investors. It says:

- During 2012 so far, 35% of the LPs interviewed have made new commitments to private equity funds focusing on opportunities in Asia. 

- 34% of LPs expect to increase their allocation to Asia over the next 12 months, with a further 65% of investors looking to maintain their current level of exposure to the region.

- 35% of LPs prefer to invest in country-specific funds. 31% of LPs look to gain exposure through pan-Asia funds, while 16% prefer global funds that also invest in Asia. 23% prefer to take an opportunistic approach.

- Greater China continues to attract the most attention from LPs, with 58% of the investors surveyed stating that the region is presenting the best investment opportunities within Asia, followed by India (36%) and ASEAN (33%). Last year a higher 68% and 61% named China and India respectively. ASEAN countries such as Vietnam and Malaysia are attracting more attention. 

- Only 1% viewed that Japan presents the best investment opportunities in Asia. 

Sorry for us, a Japan-based LP advisor, but it is a fact that Japan today offers great investment opportunities and that investors should create a PE portfolio that does not rely on a single profit driver. 

Carlyle / Unison-owned Covalent Avoids Default By Loan Extensions And Buy-backs

Covalent Materials, backed by Carlyle and Unison, has avoided a default on its JPY 53.3 billion (USD 680 million) outstanding debt due February 2014 after agreeing to buy back up to JPY 21 billion at a 24% discount and paying the rest with up to 4 year maturity extensions. The interest rate was increased from 2.87% pa to 4.25%  pa and the redemption amounts will increase by JPY 1.25 over JPY 100 loan notional every 6 months. The original proposal put together by Covalent was to extend the maturity by 4-6 years on the 60 % of the outstanding loan balance without a rate increase nor buy-backs. Blackstone Advisory Partners advised the bondholder group.

Covalent, ex-Toshiba Ceramics, was bought by Carlyle and Unison in 2006. Carlyle held a 47.2 per cent stake in Covalent and Unison a 47.5 per cent stake at the end of March 2012.

The business has recently struggled to maintain profitability as the price of chips has fallen. Covalent sold its silicon wafer business to a Taiwanese company in March 2012, causing a one-time loss of JPY 31 billion (USD 400 million), in order to focus on ceramics business (materials and parts for manufacturing semiconductors). The wafer business and the ceramics business respectively occupied a half of Covalent's JPY 68 billion (USD 870 million) revenue in 2012.

Sony And Olympus To Form A Surgical Endscope JV

Sony Corp. (6758) will take on a JPY 50 billion (USD 640 million) private placement of Olympus Corp. (7733) for slightly more than 1,400 yen a share and become Olympus' top shareholder, with a roughly 11% stake. The capital ratio of scandal-tainted Olympus fell as low as 2.2% at the end of June. The share issuance to Sony is expected to lift the ratio to around 10%.

Sony and Olympus will establish a joint venture to develop endoscopes making the most of Sony image sensor and 3-D imaging technologies, with a focus on a type used in keyhole surgery. Olympus is the world's top manufacturer of gastroenterological endoscopes with its 70% market share, but the company trails foreign rivals in surgical endoscopes.

Recently, Sony has funded JPY 57 billion through the sale of its chemical business to the DBJ - Union consortium, while Olympus has sold its mobile phone retailer subsidiary to Japan Industrial Partners for JPY 53 billion.

Softbank May Acquire eAccess, Minority-Owned By Goldman, Blackstone and Temasek, Paying As Much As 4 Times Market Value

Softbank Corp. (9984), Japan's third-largest mobile phone carrier, will reportedly acquire fourth-ranked rival eAccess Ltd. (9427) for as much as  JPY 200 billion (USD 2.56 billion). According to a press report, Softbank plans to make eAccess a wholly owned subsidiary through a stock swap and hopes to use eAccess' available bandwidth to cope with sharply rising data traffic. Combined sales at Softbank and eAccess in this FY are expected to total about JPY 3.6 trillion (USD46 billion), which will make Softbank the second-largest mobile carrier in Japan.

At the news, eAccess shares immediately hit the limit price, while Softbank shares plunged by 3%.
The market value of eAccess was merely JPY 52 billion (USD 670 million).

In July 2010 Blackstone lead a JPY 45 billion (USD 577 million) share financing by eMobile, a subsidiary of eAccess to be merged with its parent immediately after the share financing. Blackstone Capital Partners V funds invested JPY 16 billion (USD 200 million) (equivalent to 6% of the subsidiary), Goldman Sachs Group invested JPY 12 billion and eAccess invested JPY 17 billion. Temasek also had a minority stake in eMobile.

Unison Participates In DBJ's Sony Chemical Acquisition

Unison Capital has announced that it has acquired a 40% stake in Dexerials Corporation, formerly a part of Sony Chemical & Information Device Corporation, a 100% subsidiary of Sony Corporation (6758). The investment was made through a SPC, which is 40% owned by Unison and 60% owned by the Development Bank of Japan. Dexerials manufactures and sells adhesive materials, optical film and other materials. Unison and the DBJ aim to increase the revenue of Dexerials from JPY 57 billion (USD 735 million) in 2012 to JPY 100 billion in 5 years. Dexerials is capitalized with JPY 5.48 billion (USD 70 million) and plans to IPO in the future.

In late March it was agreed that the DBJ would acquire the chemical business of the Sony subsidiary. The sale contract was concluded on June 28 and Sony announced that it has received JPY 57.3 billion (USD 735 million) from the DBJ on September 28. 

It is unknown when and how the Unison's involvement started. According to a source, Unison was among the final contenders in the Sony Chemical auction early this year.