CPPIB & GE Capital Real Estate Form USD 400 million Tokyo Office JV

Canada Pension Plan Investment Board (CPPIB) and  GE Capital Real Estate (GECRE) have announced a co-investment program to invest in central Tokyo office properties (May 8). According to the joint press release by CPPI and GECRE:

Canada Pension Plan Investment Board (CPPIB) and GE Capital Real Estate (GECRE) announced today the recent formation of the Tokyo Office Venture (TOV) targeting investment in mid-size Class A-B offices in key Central Business District sub-markets.

CPPIB and GECRE will initially invest a combined equity amount of up to JPY40 billion (US$403 million) in this new venture on a 49%/51% basis respectively. The TOV program will focus on core- plus and value-add opportunities.

This venture will leverage the locally-based origination, underwriting, asset management and leasing teams of GE Japan Corporation, a wholly-owned subsidiary of General Electric Capital Corporation.

Graeme Eadie, Senior Vice-President and Head of Real Estate Investments, CPPIB, said: “This opportunity provides us with an attractive entry point to the Tokyo office sector and supports our strategy to expand our real estate portfolio in Asia. We look forward to partnering with GECRE, one of the world’s premier real estate lessors with a proven track record in Japan.”

François Trausch, President of GE Capital Real Estate Asia Pacific, said: “By combining GE Capital’s deep domain expertise in Japan with CPPIB’s global investment reach, this co-investment program aims to bring two large real estate players together to tap the current opportunities of the office market in Tokyo. We are pleased to have CPPIB as a partner and look forward to working together as we ramp-up our sourcing activities to identify compelling commercial real estate opportunities that will generate attractive risk-adjusted returns for the TOV program.”

GE Capital Real Estate has been actively originating and managing real estate properties in Japan since 1998, and has acquired over US$6.9 billion office assets over that time.

According to PERE, a CPPIB spokeswoman said that the financial crisis has had a “disproportionate impact on the Tokyo office market,” and the firm’s research suggests that the cycle has been bottoming out over the past few months. Thus, the firm believes Tokyo’s office market “offers attractive pricing dynamics, deal access and potential for outperformance.”  PERE also "understands that its total investment capacity is around $1.2 billion."

This is CPPIB’s second joint venture in Japan, following its $1.132 billion JV with Global Logistic Properties.

Another Fraud Case - MRI International

Japan's Securities and Exchange Surveillance Commission is investigating an American financial firm, called  MRI International Inc, touting high-return medical-claims-backed investment products over the possible disappearance of JPY 100 billion (US 1 billion) clients' money.

The SESC suspects MRI International of faking performance reports and will call on the Financial Services Agency to take administrative action. The FSA is expected to immediately order the firm to suspend operations.

Las Vegas-based MRI International sells its investment products in Japan, advertising annual returns of 6% to 8.5%. It claims to have collected JPY 136.5 billion in investments from about 8,700 Japanese retail investors.

Diamond Realty To Set Up Real Estate Debt Funds

Mitsubishi Corp. (8058) 's wholly owned subsidiary Diamond Realty Management Inc. will set up an 11.3 billion yen private real estate mezzanine loan fund backed by eight investors, including a domestic pension fund, life insurer and regional bank.
The fund will invest in the mezzanine debt of large rental condominiums in Tokyo and commercial buildings in the city's Ginza and Ometesando districts. The fund is projected to yield a 5-6% annual return to attract institutional investors looking for alternatives to government bonds. Mitsubishi also plans to establish a second fund of 15-20 billion yen later this fiscal year.

List of High Multiple Exits In Japan

Private Equity International has reported several high multiple exits in Japan buyouts in its recent articles. To sum up;

1. Advantage   Komeda Coffee 7x 2013   Secondary sale
2. Advantage Community One      22x 2013   Trade sale
3. Bain Sun Telephone 8x 2012   Trade sale
4. J-Star Iki Iki 8x 2012    Trade sale
5. Unison Akindo Sushiro 8x 2012    Secondary sale 
6. KKR               Intelligence                5x  2013    Trade Sale 

In fact, the above list should also include CLSA's Ever Life exit in January 2013.

Cerberus To Increase Its Holdings in Seibu Against Seibu's Opposition

Early last month, Cerberus Capital Management announced a tender offer to raise its stake in Seibu Holdings Inc. to more than one-third, which would allow the U.S. fund to veto major board proposals at the railway and hotel operator's upcoming shareholders meeting.

Cerberus currently owns slightly more than 32% of Seibu. The tender offer, announced March 11, stands to acquire additional 4% to raise the fund's stake to 36.44%. Now the US fund plans to lift the purchase target to around 10%.

The offer runs from March 12 through May 17, with the offer price set at JPY 1,400 per share. That represents a roughly 190% premium over Seibu's closing price of 485 yen in December 2004, when Seibu Railway, its core subsidiary, was taken off the TSE. To acquire additional 10% at JPY 1,400 per share, Cerberus will be spending JPY 48 billion yen ($500 million). 

Seibu remains opposed to the move, and has garnered support from Mizuho Corporate Bank and some other large shareholders. 

Cerberus and Seibu have been under dispute over Seibu's plan to relist on the Tokyo Stock Exchange. 

Seibu was delisted in 2004 for falsifying financial statements. Seibu filed a relisting application with the TSE by last October, but no action has been taken due to disagreements with Cerberus over the timing and pricing of the initial public offering.

It was also reported that Cerberus intends to propose 8 new board members, including current chairman and former U.S. vice president Dan Quayle, and former U.S. Treasury Secretary John W. Snow, also a Cerberus senior executive, in addition to Hirofumi Gomi, a former commissioner of the Financial Services Agency; Masaharu Ikuta, previously head of what is now Japan Post Holdings Co.; and Yuji Shirakawa, a director at Aozora Bank.

Although Seibu is unlisted, it is owned by many investors. As a result, the financial instruments and exchange law requires Cerberus to use a tender offer to increase its stake above one-third.

The acquisition may result in the first major hostile TOB in the history of Japanese private equity.  

Polaris Capital Acquires Socie World From Citigroup Capital Partners Japan

Polaris Capital Group has announced teh acquisition of Socie World Co., Ltd. through its 3rd fund (1 April 2013), which has raised JPY 36 billion so far.

According to its press release, "Polaris Private Equity Fund III .... completed the acquisition of close to 100% of the issued shares of Socie World Co. Ltd from the current shareholders including Citigroup Capital Partners Japan Ltd.""Socie World operates aesthetic salons, hair salons and sports clubs for middle to high-end customers." "Socie World have opened its aesthetic salons in high-class department stores and luxury hotels and as a result secured a very solid business franchise.""On the overseas front, Socie World .... succeeded in establishing a strong franchise in Taiwan. By applying the success formula in Taiwan to other markets in Asia including China, Socie World should be able to achieve a mid to long-term growth."

According to Nikkei,  the amount invested by Polaris was JPY 3 billion.

PEI Awards: J-Star is chosen as "Firm Of The Year In Japan", while Sushiro Gave Unison "Exit Of The Year In Asia".

J-Star is awarded "PEI Firm Of The Year In Japan", beating Bain Capital and The Longreach Group. PEI writes:

The big story in Japan in 2012 was the small-cap market, with 77 percent of deals under $125 million, according to Brightrust PE Japan figures. J-Star snatched the plaudits from industry giant Bain Capital as the leading firm in this arena – and with good reason. The firm has had two impressive exits in a depressed market (a source close to the firm described the exits as 8x and 3.4x), both to strategic buyers.The seven-person firm also bought a controlling stake inThree Arrows, a small pet products supplier, for under $125 million. Gregory Hara, president and chief executive of J-Star, likes to call the firm’s investments “solution capital”, because they focus on issues within the company that private equity can fix. He believes J-Star’s reputation in the insular small-cap market has made all the difference.The firm also believes it’s well- positioned to help Japanese companies expand offshore: a January 2013 exit involved a Japan-China business.


Unison Capital is chosen as "PEI Exit Of The Year In Asia" with Sushiro. According to the PEI article:

A lack of deals and low returns in Japan have disappointed investors. But Unison Capital’s 2012 exit of Akindo Sushiro, a sushi restaurant chain that it sold to UK-based Permira for $1 billion, may give some pause for thought. Unison’s sale yielded an 8x exit multiple, says Tatsuo Kawasaki, Unison co- founder and partner. Operational work played a key role. Over a five-year holding period, EBITDA increased from 4 billion to 10 billion yen (€84 million; $113 million), purely from organic growth, he adds. “The management pushed forth with growth and profitability initiatives and these came to fruition in light of the fact that the Japanese economy at best is going sideways,” Kawasaki says.
In the last 13 months, Unison also made five acquisitions, four in Japan and one in Korea, which came from Fund III (vintage 2008). In 2013, the firm intends to raise a new Japan-focused fund, suggesting that the country, at least for Unison, is living up to expectations.

Japan's Orix Buys 90.1% of Robeco

Orix Corp. (8591) has agreed to buy approx. 90.1% of Netherlands asset manager Robeco from Rabobank for EUR1.935 billion (JPY 241 billion). This is the largest acquisition ever by Orix, Japan's biggest financial services and leasing company. Orix will allocate EUR 150 million treasury stocks to Rabobank as part of the acquisition price, and as a result Rabobank becomes a shareholder of Orix.

Rabobank will retain the remaining 9.99% stake in Robeco and will continue "to cooperate in maintaining and expanding Robeco’s business platform", according to the press release.

Robeco was founded in 1929. It had EUR189 billion in assets under management at the end of last year, a 26% increase from 2011.  The asset management firm has about 1,507 employees and has strong customer bases in Europe and the U.S. Traditional and alternative products of Robeco and its subsidiaries, SAM and TransTrend, have been invested by Japanese institutional investors and retail investors via major local securities firms.

Orix, which listed on the New York Stock Exchange in 1998 and which is more than 50% foreign-held, also operates in investment banking, life insurance, venture capital and in the financing of real-estate development.

CLSA Japan Sells Everlife To LG Household & Health Care

CLSA Sunrise Capital Partners I, a 2006 -vintage Japan-focused fund with USD 350 million commitment, sold 100% shares of  Everlife Co. Ltd. to LG Housefholld and Health Care for JPY 25.8 billion (USD 285 million).

According to IR documents of  LG Household and Health Care, the sale and purchase agreement was concluded on 17 December 2012 and the transaction was completed in late January. Everlife, 3rd largest direct marketing company in Japan's health care sector after Suntory and DHC, was valued at JPY 37 billion (USD 410 million), or 6 times estimated 2013 EBITDA.

CLSA Japan invested in Everlife in February 2008, but still managed to generate a generous return.

CLSA Japan also announced the first closing of its second fund with USD 150 million commitments form its existing foreign LPs.

CITIC Japan's Tri-Wall Eyes Russia And Turkey

Tri-Wall, a maker of heavy-duty cardboard and a portfolio company of CITIC Japan Capital Partners II,  has acquired DS Smith Plc's special cardboard business. Based in the UK, DS Smith sells its products to car parts makers across Europe. Tri-Wall, which has focused on Asian market to date, now aims to expand its business into Russia and Turkey. With the addition of 1.3 million sq. meters production capacity by the acquisition, Tri-Wall's capacity increases to 3.0 million sq. meters.

USD 78 Billion Record Trade Deficit in 2012

Japan posted a record annual trade deficit of JPY 6.927 trillion (USD 78 billion) in 2012, according to Finance Ministry figures released Thursday. The largest gap between exports and imports in history was last recorded in 1980 during the"second oil crisis". The new record deficit is partly due to a sharp rise in the imports of fossil-fuel, particularly liquefied natural gas, for thermal power projects. 

The balance of trade in goods for December, released simultaneously by the ministry, came to JPY 641.5 billion (USD 7.1 billion) in deficit, mainly reflecting weak exports and rising imports.

Taiwan's Chinatrust to Buy Tokyo Star Bank

The Nikkei reported that Taiwan's Chinatrust Commercial Bank made an official proposal to acquire Tokyo Star Bank to shareholders for JPY 50 billion (USD 555 million) earlier in the month. Most of the shareholders - including U.S. investment fund Lone Star Funds, Shinsei Bank and France's Credit Agricole SA - are believed to have indicated their support for the bid.

Pending a final agreement with shareholders, the deal will be reviewed by the Financial Services Agency. The FSA will check whether the Taiwanese bank meets necessary ownership conditions under the Banking Act. The deal will make Chinatrust the first foreign bank to acquire a Japanese bank. Previous foreign takeovers of Japanese banks mainly involved investment funds.

Tokyo Star Bank was previously owned by Lone Star, who bought its predecessor Tokyo Sowa Bank in 2001. Loan Star listed the regional bank on Tokyo Stock Exchange in 2005, and subsequently sold its remaining holdings to Advantage Partners. Advantage bought 100% of the bank through take-private TOB in early 2008. In 2011 Advantage was forced to transfer the bank's entire shares to the lender consortium, which included Loan Star and other current shareholders.

Government / BOJ Joint Statement Sets 2% Inflation Target

The Japanese government and the Bank of Japan issued a joint statement to set an inflation target of 2%  today. The central bank also decided to resort to a new method of open-ended monetary easing to pump more money into the economy. The move was largely expected after Prime Minister Shinzo Abe took office last month, but it still denotes a very significant change in the historical relationship between the Government and the BOJ.

The joint statement issued today is binding for both the government and the BOJ. While the BOJ has agreed to try to hit the 2% inflation target as quickly as possible, rather than over the medium to long term, the government has also promised to introduce measures to raise the international competitiveness of Japanese industry and to encourage investment by means of deregulation.

Norinchukin Bank To Support Agri-Corporations

Norinchukin Bank will launch a JPY 100 billion (USD 1.1 billion)  loan program to support large agricultural corporations in this April. The program is aimed at promoting regional development and enhancing the overseas competitiveness of Japanese agricultural products. It is the bank's first such undertaking for the farm sector.

 The farmers' bank will also establish a JPY 5 billion (USD 56 million) fund to invest in about 100 corporations trying to obtain farmland or establish new businesses, providing an average of 50 million yen to each.

The initiative is not very significant given the size of the bank, but it is the first major  attempt to support  agricultural "corporations", to which the bank has traditionally kept some distance in order to favor agricultural "co-operatives" and their member individual farmers.

Carlyle Divests Qualicaps And Chimney

Carlyle has announced that it has agreed to sell its entire shareholdings in Qualicaps (Nara, Japan) to Mitsubishi Chemical Holdings (4188). Qualicaps is the largest provider of pharmaceutical capsules in Japan and is the second largest in the global high quality capsule markets, which has an estimated size of USD 1.2 billion with single-digit growth in recent years.

According to Mitsubishi Chemical, Qualicaps was valued at JPY 55.8 billion (USD 656 million) (inclusive of debts). The revenue of Qualicaps is estimated at JPY 19 billion (USD 230million) in 2012. Qualicapse CEO said, "During Carlyle’s ownership, our revenue and EBITDA increased by more than 50% and 120% respectively.." The transaction is expected to close in March 2013.
Carlyle acquired Qualicaps from Shionogi (4507) in October 2005 reportedly for JPY 20-25 billion (USD 235-300 million).

10 days ago,  Carlyle also announced that its majority-owned restaurant operator, Chimney, relisted by making a public stock offering on the Tokyo Stock Exchange Second Section on December 14, 2012 and that Carlyle would sell shareholdings in the company equivalent to around 53% of total shares issued.

In December 2009, Carlyle sponsored Chimney's MBO and acquired a 87.56% of the company for JPY 19.4 billion (USD 228 Million) of which JPY 8.6 billion was financed by debts.

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)