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MENAFN - Arab Times - 27/12/2012

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Greg Karpinski, Tareq Al Saleh (Chairman of KES) and Ahmad Al Hamad (Managing Director of KCIC).
(MENAFN - Arab Times) The world economy will see sluggish growth of 2.8 % in 2013 against the 2.6% growth seen in 2012, remarked Greg Karpinski, Director of Infrastructure Principal Finance at the Standard Chartered Bank. He added that the US will see some recovery but European markets would continue to wrestle as emerging markets continue to be the biggest driver of global growth. "We're encouraged by what we see in the US notwithstanding the fiscal cliff, we actually think the US will see a good year of economic activity but Europe is a problem, we are very bearish and have deep concerns", he remarked.

China's double digit growth is a thing of the past, he said, "This is going to be a serious problem because in the lower growth environment, what is going to happen to these highly indebted Chinese companies? When I think of where I want to go next, China is not one of my top markets." India's GDP is set to rise in 2013, but a weak INR will hurt imports and current account balance and as a result investors remain skeptical of what will happen in India. Reforms and policy actions are urgently needed to restore faster growth.

He relayed his optimism about Indonesia, Malaysia, and Philippines where growth is accelerating to above 10-year average rates. The Philippines is likely to be a star performer in 2013, growing 5.8%.

"Overall, we are going to see odd spots of growth and no cohesive theme where everybody is growing in tangent with each other", he added. Metals and mining, LNG and Gas, energy infrastructure, low cost health care solutions in emerging markets will present good investment opportunities in the coming year.

In discussing Asian Private Equity at a symposium organized by the Kuwait Economic Society, Karpinski shared lessons learnt as a private equity investor.

Focusing on finding the right partnership is the best strategy, it is important to consider whether a partnership could be sustained and would flourish in the next five years instead of trying to determine how much money could be made off the opportunity.

He pointed out that doing business in emerging markets can be difficult and challenging. Looking at China, he pointed out that in the last 24 months there have been 30 New York listed 30 Chinese companies that have had accounting discrepancies which forced their auditors to resign. There is also a limited amount of transparency in terms of what goes on in china that has come to the fore now.

The Chinese often have different sets of accounting books, one for tax authorities and another for investors, chairman etc. Therefore, it becomes hard to ascertain where the real cash flow is in the company.

Another major challenge centers on the concept of the legal representative and chop. No chain of authourity. One of the necessities for doing business in China is the use of an official company seal or chop. This device is used by administration and management to legally authorize documentation. It is difficult to remove a bad executive who is the legal representative and has control of the chop. "This blockage is one of the major problems in Chinese commercial law that prevents active and direct investment by private equity investors", he said.

Another aspect of difficulty is apparent in offshore vs onshore activity. When off-shore, the rights are clear cut, courts respect contracts and transactions are conducted with speed which cannot be expected in onshore dealings.

The Middle East looked at Asia as an under allocated region before 2008, but after the economic crisis, the story of Asia was reaffirmed, said Ahmad Al Hamad, Managing Director of Kuwait China Investment Company.

Asia comes out ahead in terms of policy and governments taking the right steps to build confidence and stability, he said. "The policy tools are more robust than what you find in the rest of the world."

He pointed out significant fundamental shifts in Asia include adjustments to understanding its region and markets that indicate strong foundations for investing in Asia, "Japan shifted its trading to Chinese markets; Korea shifted its exports from 14 per cent to China to 28 per cent in a year."

Emerging markets have their own conditions of operation and one needs to be very close to the company to have control. Information asymmetry is rampant as investors and management have different motives, so one must develop a keen sense of what is true.

"You really have to get to know the country and the individuals before you get to know the business. Accept the realities of working in emerging markets and learn to work with those," he concluded.

By: Cinatra Fernandes


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