Capital
Confidence
Barometer
October 2013 | ey.com/ccb
Southeast Asia
Changing trends
Economic outlook
Growing but mixed sentiments
Growth expectations
Growth back in focus
Deal outlook
M&A back on the agenda
Access to capital
Wide access to credit but
low debt appetite
6th
SEA
edition
Growing through deals back
in focus...
Continuing positive economic sentiment and strong balance sheets
has kept growth as a focus for SEA respondents – and acquisitions
are competing with organic growth for capital
Key findings
63%
55%
50%
41%
60%
59%
expect economic growth across Southeast Asian
markets to improve
consider growth as a primary corporate focus,
followed by cost reduction and operational
efficiency
are placing their greatest attention and resources
on investing capital
plan to pursue an acquisition, the highest response
rate to predict a deal-making environment in 12
months
expect deal volumes across Southeast Asia to
improve
plan to use debt and equity as their primary source
of deal financing
Changing trends
A note from Harsha Basnayake, Managing Partner,
Transaction Advisory Services, Asean Region
Our respondents continue to maintain an overall positive sentiment about their local
markets. Confidence levels in markets such as Philippines, Thailand, Singapore and
Vietnam is high while in markets such as Indonesia and Malaysia it is moderate.
Across the region, growth is a given with more corporates expecting to see a growth
rate for their local economies above 3% over the next 12 months. 76% also say that
the regulatory changes in their markets continue to be conducive for growth and
business. 91% expect to maintain their current head count levels or grow and create
jobs. A wide majority say that credit availability is stable and improving.
With that being the backdrop, SEA corporates are shifting gears from being
cautious to being more bold, signaling possibly a change in strategy in the coming
months. Growth is firmly the number one priority - a major shift in focus after two
years of cautiousness. And the focus is both organic and inorganic growth.
Managing costs, continuing to create efficiencies and staying focused on core
products and markets is expected to drive the organic growth strategy. Inorganic
growth is encouraging more SEA executives to engage in M&A activities and to do
bigger deals. With continued inbound interest into many of our markets, acting now
to consolidate and compete is a sensible thing to do for those who can afford it.
While ready access to credit and investing activities dominate the capital agenda
SEA corporates are not looking to aggressively gear up. Instead, they want to put
their balance sheets to work smarter and maintain low gearing.
These are smart choices. They also signal that many of our corporates will continue
to have a lot more head room to grow, invest to expand and weather external
storms.
A note from Pip McCrostie, Global Vice Chair,
Transaction Advisory Services
Confidence in the global economy is at a two-year high. Companies have weathered
a prolonged period of uncertainty during which time they strengthened their
balance sheets and optimized their capital structures. Having warehoused cash for
a number of years and with a ready access to credit, leading corporates are in a
strong financial position to do deals – they now have more confidence to pull the
trigger.
This does not mean we will see a return to boom-time deal-making. That was
unsustainable – but so is the M&A recession we have experienced since 2009. For
many companies, operational efficiencies and a focus on cost cutting can no longer
meet growth mandates. As a result, the signs are that M&A will once again be a
preferred route to achieve growth.
1
Economic outlook
Market sentiments continuing to improve
With 88% expecting their local economies to grow and 51% expecting to create more employment, corporate confidence in
Southeast Asia continues to be high. SEA respondents are also bullish about the global economy with signs of stability and
growth in developed markets. However, this sentiment is not evenly felt across markets with respondents from Indonesia
and Malaysia in particular registering a more pessimistic outlook indicating that they expect to see a decline in the
economic prospects in their respective local markets over the next six months.
Nevertheless the overall outlook for the region continues to remain positive, conducive for growth and investment, with
76% of the respondents indicating that the current regulatory environment across markets are supportive of such
initiatives.
►
Global economy is improving
There is a significant shift in corporates confidence in the global economy among SEA respondents.
Confidence levels have improved dramatically over the past two and a half years as there are signs of
stability and growth in developed markets. However, presumably influenced by the recent market
volatility in emerging markets, 18% of the respondents believe that the global economy is declining
compared with 14% six months ago. A small shift compared with 60% who say that global economy is
improving, the highest to hold such a sentiment over the past 12 months.
► Mixed optimism in the local economy
There is continued optimism in the local economies among SEA respondents with 48% clearly say that
the local economic conditions are improving compared with 39% six months ago. SEA respondents
continue to say that key indicators of economic sentiment such as economic growth and employment
growth are improving locally in their respective markets. This sentiment however is not evenly felt
across markets, reflecting the diversity in the region. An increased number of respondents from
Malaysia and Indonesia say that their local economic conditions are declining. That sentiment is also
impacting expectations of corporate earnings – with only 39% of SEA respondents expecting improved
corporate earnings compared with 50% six months ago.
While those who are taking a clear position that the local economies are improving overall at its peak
compared with the last 18 months, corporate executives in SEA are cautious about the political and
economic landscape that is taking shape locally.
► Better economic growth predictions
45% of SEA respondents believe that their own local economies will grow by more than 3%, up from
33% six months ago. This positive sentiment was more pronounced in markets such as Vietnam,
Philippines and Thailand. The shift towards better economic prospects reflect the medium to long term
growth prospects in the region. A sizable 43% continue to say that their local economies will grow only
by 1% - 3% compared with 49% six months ago.
2
Confidence
grows
Q: What is your perspective on the state of the global economy today?
Improving
13%
22%
Stable
37%
33%
18%
14%
Declining
Oct-13
60%
60%
49%
of SEA respondents say
that the global economy is
improving, up from 49% six
months ago
54%
Apr-13
Oct-12
Q: What is your perspective on the state of the local economy today and your
level of confidence on the following?
Perspective on the state of local economy
Improving
39%
36%
33%
Stable
Declining
42%
48%
51%
Employment
Employment
growth
growth
39%
33%
Short term
market volatility
Equity valuations/
Equity
stock market
outlook
valuations/…
22%
Oct-13
39%
Apr-13
39%
Corporate
Corporate
earnings
earnings
19%
10%
Confidence level positive
Economic
growth
growth
Oct-12
35%
53%
51%
25%
36%
32%
23%
32%
Oct-13
5%
9%
3-5%
28%
43%
1%-3%
Zero growth
Negative growth
36%
7%
16%
5%
2%
Oct-13
49%
48%
of SEA respondents say
that their respective local
economies are improving,
up from 39% six months
ago
50%
44%
Apr-13
Q: By how much do you expect your local economy to grow in the next 12
months?
More than 5%
63%
Oct-12
45%
of SEA respondents say
that their local economy
will grow by more than 3%
this year, up from 33% six
months ago
Apr-13
3
Growth expectations
Investing to grow organically and through acquisitions
Breaking the trend of the past 12 months, there is clear shift in attitude in corporate SEA in wanting to invest and grow.
55% of SEA respondents say that they see growth as their top priority. And what has been opted for is a more balanced
approach to growth where emphasis is placed both on organic growth as well as inorganic growth through acquisitions.
When it comes to managing their capital agenda activities, the more cautious capital optimization strategies have given
way to capital investment. 50% of SEA respondents say that investing capital to fuel growth is dominating their capital
agenda decision making.
This shift in trends perhaps is signaling a willingness to make balance sheets work more towards mitigating any
risk on corporate earnings.
►
Growth has climbed back the priority ladder
55% of SEA respondents have firmly identified growth as a priority compared with just 39% six
months ago. This is a significant reversal in the trend of a falling rate of respondents who felt that
growth is a priority over the past two years. Maintaining stability which was seen as a focus, is seen
by many not as an acceptable option over the next 12 months given the continued growth
expectations in the region.
Organic growth is expected to center around rigorous execution of strategies relating to core
products and services. Cost reduction continues to remain consistently high on the agenda.
►
Excess cash will primarily be used to fund
growth and pay down debt
58% of SEA respondents are expected to use their excess cash to fund growth, a further indication
that just staying stable is not an option. When funding growth, striking the right balance between
organic and inorganic growth has clearly become a focus with nearly half of these respondents say
that they will invest to fund inorganic growth. In addition to funding growth, using excess cash to pay
down debt is also gathering momentum. However, the balance between investing excess cash to
finance growth versus returning to stakeholders remain fairly consistent over the past 18 months.
►
Investing capital is driving the capital agenda
61% of SEA respondents see capital allocation as a priority focus of their Boardroom agenda – a
consistent sentiment over the past 12 months.
With growth being the focus, nearly half of all SEA respondents say that investing capital is the top
priority that is driving their capital agenda. This is a clear shift in attitude to managing capital - where
a more cautious capital optimization strategy was the focus for the past 12 months. With positive
economic sentiment driving balance sheets to work harder to create value, investment and growth
has started to gain more attention from SEA corporates.
4
Balanced
investment to grow
55%
Q: Which statement best describes your organization's focus over the
next 12 months?
Oct-13
55%
Apr-13
35%
39%
Oct-12
7% 3%
35%
47%
24%
35%
2%
16%
of SEA respondents
indicate their primary
focus is on growth over
the next 12 months
compared with 39% six
months ago
2%
Growth
Cost reduction and operational efficiency
Maintain stability
Survival
Q: If your company has excess cash to deploy, which of the following will be
your company's focus over the next 12 months ?
Investing in growth
Pay
Paydown
down
debt
debt
36%
Organic
growth
Inorganic
growth
growth
Return to stakeholders
44%
38%
13%
Oct-13
Oct-12
Apr-13
Oct-12
Q: On which of the following capital management issues is your company
placing the greatest attention and resources today?
Oct-13
50%
Apr-13
30%
Oct-12
29%
Investing capital
Capital raising
29%
41%
48%
Capital optimization
Capital preservation
15%
22%
19%
6%
7%
4%
58%
of SEA respondents with
excess cash plan to invest
on growth over the next
12 months
2%
6%
5%
Buy
Buy back
back
stock
stock
26%
Apr-13
10%
10%
14%
Paying
Paying
dividends
dividends
22%
Oct-13
17%
30%
27%
50%
of SEA respondents
indicate investing capital
is driving their capital
agenda
5
Deal outlook
M&A back on the agenda - more and larger deals are
expected
Acquisitions are back on the agenda. 41% of SEA respondents say that they will pursue an acquisition over the next 12
months. Such a sentiment has not been seen since April 2012. With a strong emphasis on growth and access to capital across
the markets continuing to be stable, SEA respondents are perhaps predicting a shift towards a deal making environment.
Many also expect deal volumes and values to increase.
This shift in sentiment is not unexpected. With growing inbound investment interest across SEA
markets there will be significant competitive advantage for those who recognize the
consolidation opportunity and take action early.
►
M&A is back on the agenda
M&A is back on the agenda for SEA respondents. 41% of SEA respondents expect to pursue acquisitions
in the next 12 months, the highest response rate since October 2012. 60% of SEA respondents expect
deal volumes to improve over the next 12 months. This resonates with current sentiments on deal
fundamentals, where expectations on quality of deals and closure rates are all expected to improve over
the next 12 months.
In a stable and growing market with significant inbound interest, executives know that deals will allow
companies to consolidate market share and capacity to compete. However, this is a modest shift as only
22% see M&A as an option for growth and is perhaps the beginning of a shift in sentiment for inorganic
growth.
►
Focus on larger deals and expand into non-BRIC
emerging markets
Compared to six months ago, SEA respondents expect to pursue larger deals over the next 12 months.
Average deal values are expected to increase from less than US$50m to US$51m - US$500m
category. With core fundamentals supporting M&A and deal activities becoming stronger and appetite
to invest in growth initiatives high on the agenda, this is no surprise. When it comes to investment
choice, non-BRIC markets including those in SEA have become high priority.
►
Valuation gaps are expected to widen
29% of SEA respondents expect valuation gap to widen compared with 13% six months ago.
Divestments are not on the top of SEA corporates’ agendas, with only 17% planning to sell any part of
their business over the next 12 month period.
With M&A back on the agenda but low appetite for divestment by SEA corporates, it is not surprising
that the valuation gap between buyers and sellers is expected to widen. Coupled with this inbound
investor sentiments in the region will also add pressure on valuations. A wait and see attitude may not
be a smart option.
6
“The first three quarters of 2013 saw regional M&A activity reach new highs, with Thailand and Philippines being the
brightest spots. The Energy Mining and Utilities, Financial Services and Consumer Products sectors drove this deal
activity. With M&A activity now spread across a number of markets in Southeast Asia and corporate confidence running
high, we expect to see deal volumes and values continue to trend upwards.”
Luke Pais, Southeast Asia Private Equity and M&A Leader
Looking bright for
deal making
Q: Do you expect your company to pursue acquisitions in the next 12
months and what is the expected deal size?
% expect to pursue acquisition
53%
Expected deal size
48%
Oct-13
41%
37%
25%
41%
31%
Oct-11
Apr-12
26%
29%
Oct-12
Apr-13
Apr-13
34%
Oct-12
SEA
42%
44%
61%
44%
14%
36%
35%
3%
21%
US$50m or less
US$51m – US$500m
Over US$500m
Oct-13
Global
Q: How has your sentiment towards investing in emerging markets changed
versus a year ago?
Greater focus – BRIC
22%
Greater
Greaterfocus
focus– –nonnonBRIC
BRIC
emerging
emerging
BRIC
emerging
28%
Stayed the same
41%
Less
Lessfocus
focustoday
today- -–
BRIC
BRIC BRIC
Less
Less
focus
today
Lessfocus
focustoday
today–––
non-BRIC
non-BRICemerging
emerging
7%
2%
41%
of SEA respondents
expect to pursue
acquisitions over the next
12 month period
28%
of SEA respondents
indicate they will place
greater focus towards
investing in non-BRIC
emerging markets
Oct-13
Q: Do you expect the valuation gap between buyers and sellers in the next 12
months to:
Oct-13
Apr-13
Oct-12
13%
22%
Widen
11%
60%
29%
69%
59%
Stay the same
18%
19%
Contract
29%
of SEA respondents
expect valuations gap to
widen, up from 13% six
months ago
7
Deal outlook, cont’d
Top cross-border investment destinations
Top five investment destinations for SEA respondents
1. China
4. India
2. Myanmar
3. Vietnam
5. Indonesia
Top inbound investor
markets
Target markets
8
Indonesia
Malaysia
Myanmar
Philippines
Singapore
Thailand
Vietnam
Japan
Australia
China
Singapore
Australia
Australia
China
Singapore
US
Japan
Thailand
US
Singapore
Australia
Thailand
Thailand
Singapore
Japan
Thailand
UK
US
US
UK
Australia
Australia
UK
China
Japan
Australia
Singapore
Thailand
US
India
Malaysia
Singapore
and inbound investors
Top 10 investment
destinations for
global respondents
Apr-13
Oct-13
India
India
China
Growing interest
in Myanmar
Top 10 investment
destinations for SEA
respondents
Apr-13
Oct-13
-
Indonesia
China
▲
Brazil
▲
China
Myanmar
▲
Brazil
China
▼
India
Vietnam
▲
US
Canada
▲
Vietnam
India
▼
Canada
US
▼
Malaysia
Indonesia
▼
Mexico
S. Africa
▲
Thailand
Malaysia
▼
Chile
Vietnam
▲
Cambodia
Thailand
▼
Indonesia
Myanmar
▲
Hong Kong
S. Africa
▲
UAE
Mexico
▼
Myanmar
Singapore
▲
Hong Kong
Indonesia
▼
Taiwan
Australia
▲
SEA respondents continue
to show a strong appetite
for investing within their
own region, with countries
in the region representing
six of the top 10 preferred
investment destinations.
While Myanmar, Vietnam
and Indonesia are the top
three most attractive
markets, Myanmar’s jump
in ranking from ninth to
second reflects surging
investor appetite and
curiosity about that
country. At the global level,
Myanmar is the eighthmost preferred destination,
following Vietnam and
Indonesia.
“2015 is seen as a pivotal year for
Myanmar due to the general
elections, assumption of a central
role in the ASEAN Economic
Community, and the launch of the
Yangon Securities Exchange. Deal
activity is increasing as investors
are having a lot better confidence
in the country.”
Vorapoj Amnauypanit, Partner,
Transaction Advisory Services
Thailand
9
Access to capital
Strong balance sheets with low debt appetite to
continue
Strong balance sheets are here to stay. 50% of SEA respondents expect to maintain their gearing level at less that 25%. In
an environment where SEA respondents say that they want to invest in growth and access to credit is expected to increase
this is a conservative strategy. Or is it a reflection of the strength in reserves and cash that companies have built up over
the past few years?
These are good signals. Considering the sentiment in many SEA markets about US easing its quantitative measures, SEA
corporates appear to be able to remain focused on their growth strategies in the region.
►
Strong balance sheets with low gearing to
continue
86% SEA respondents say that access to credit is either stable or is expected to improve. Yet relative
to global respondents, SEA corporates are less reliant on debt funding, especially in markets such as
Malaysia, Singapore and Vietnam. 50% of SEA respondents indicate their debt-to-capital ratio are
less than 25% and 55% expect their company's debt-to-capital ratio to remain unchanged over the
next 12 months. There is also an increased appetite to pay down debt using any excess cash. So the
discipline of maintaining strong balance sheets with low gearing is here to stay.
►
One in three SEA respondents expect to
refinance their debt
A third of those who expect to refinance are motivated to do so to retire maturing debt, while 35%
are seeking to optimize their capital structures and lower their borrowing costs. With stable access
to credit and emphasis on growth, one would expect to see companies increasing debt to optimize
their overall cost of capital. But conservatism and low debt appetite continues to prevail in SEA as
strong balance sheets and reserves continue to get deployed to finance growth.
►
More deals are funded through debt
With steady access to credit and an increased appetite to take on larger deals, there seems to be a
shift towards leveraged financing of deal activities among SEA corporates. 36% of SEA respondents
say that they expect to finance deals through debt compared with 24% six months ago. Compared
with the overall sentiment to maintain balance sheet gearing low, this seems to be more about
shifting existing loans towards funding deals as opposed to increasing overall corporate debt.
10
“Increasing sentiment towards acquisition and growth investment activities makes it increasingly important
for SEA corporates to have efficient balance sheets, with funding "headroom" available as dry powder for
opportunistic investments.”
Lynn Tho, Southeast Asia Infrastructure and Debt Advisory Leader
Strong fundamentals
to be bold
Q: What is your company's current debt-to-capital ratio and how do you
expect this ratio to change over the next 12 months?
Expectation on debt-to-capital ratio
Debt-to-capital ratio
Oct-13
50%
Apr-13
50%
Oct-12
49%
32%
37%
34%
Less than 25%
More than 50%
Oct-13
18%
13%
17%
20%
Apr-13
25%
Oct-12
28%
Increase
25% to 49.9%
55%
50%
25%
25%
53%
Remain constant
19%
% saying yes
36%
32%
32%
24%
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Q: What is the likely primary source of your company's deal financing in the
next 12 months?
Oct-13
Apr-13
36%
41%
24%
Oct-12
50%
48%
Debt
23%
Cash
26%
41%
11%
of SEA respondents
believe that credit
availability will improve or
at least remain stable
Decrease
Q: Does your company plan to refinance loans or other debt obligations in the
next 12 months?
30%
86%
32%
of SEA respondents
expect to refinance their
debt obligations this year,
up from 24% six months
ago
36%
of SEA respondents say
they will use more debt to
finance deals
Equity
11
Spotlight on Singapore
Positive sentiment fuels appetite for growth
Singapore respondents are more upbeat regarding growth predictions in their market. A stable political environment,
improving sentiment on economic growth, employment growth, corporate earnings and strong corporate balance sheets
are driving Singapore respondents to implement their growth ambitions.
Singapore respondents are strongly focused on growth. With good deal fundamentals, access to credit and strong
corporate balance sheets, one can expect to see more deal activities over the next 12 months.
►
Optimistic about the local economy
87% of the Singapore respondents say that their local economy will either remain stable or will
continue to grow. There is a significant jump in sentiment compared with six month ago. 31% of
Singapore respondents believe the local economy will grow at least 3% in the next 12 months,
compared with 26% six months ago. 92% of Singapore respondents say that they have confidence in
the local regulatory environment and see it as conducive for growth – the highest in the region.
► Solidly focused on growth
There is a strong focus on growth among Singapore respondents compared with six months ago. The
sentiment has increased for both organic and inorganic growth. 46% of Singapore respondents who are
focused on organic growth say that more rigorous execution of core products and existing markets will
take center stage in their strategies for the next 12 months.
Nearly one third who see growth as their focus, see M&A activities as a priority.
Affirming the significance of growth, 56% of Singapore respondents say that they will use their excess
cash to finance growth.
►
Deal appetite has rebounded
50% of Singapore respondents say that they expect to pursue acquisitions over the next 12 months. With
equity market corrections in the middle of the year contributing to attractive valuations, 64% of Singapore
respondents expect M&A deal volumes to improve and 58% expect the valuations to remain stable over the
next 12 months.
Relative to other SEA markets, Singapore respondents also have the strongest appetite to pursue asset sales
or divestments. 25% of Singapore respondents say they are likely to undertake divestments over the next 12
months. 44% of such respondents expect to divest such businesses to enhance shareholder value and 33%
expect to raise cash to compensate for underperformance.
►
More deals will be debt funded
44% of Singapore respondents believe that credit availability is improving at the local level. Yet there is
an overall low appetite for gearing with 47% indicating that their balance sheets are less than 25%
geared. Despite this, there seems to be a shift in appetite towards debt financing for M&A activities. 42%
of Singapore respondents say they would finance deals through debt compared with 33% six months
ago.
12
“Singapore corporates are well positioned to focus on M&A activity fuelled by strong corporate
fundamentals, availability of credit and positive economic sentiment.”
Purandar Rao, Singapore Market Leader, Transaction Advisory Services
Growth is
priority
87%
Q: What is your perspective on the state of the local economy today?
Improving
37%
18%
29%
Stable
50%
54%
32%
13%
Declining
28%
Oct-13
of Singapore respondents
believe that their local
economy is either stable
or improving compared
with 72% six months ago
39%
Apr-13
Oct-12
55%
Q: Which statement best describes your organization's focus over the next
12 months?
Growth Organic
Growth inorganic
36%
23%
13%
10%
Oct-13
reduction
CostCost
reduction
and
and operational
operational
efficiency
efficiency
28%
11%
Maintain
stability
32%
15%
19%
23%
6%
5%
2%
Survival
Apr-13
36%
41%
Oct-12
Oct-13
Apr-13
Oct-12
Q: Do you expect your company to pursue acquisitions in the next 12 months
and what is the expected deal size?
Expected deal size
% expect to pursue acquisitions
58%
54%
51%
50%
Oct-13
56%
Apr-13
56%
17%
27%
6%
38%
44%
Oct-12
Oct-11
Apr-12
Oct-12
Apr-13
14%
36%
50%
US$50m or less
US$51m – US$500m
Over US$500m
Oct-13
Q: If your company has excess cash to deploy, which of the following will be
your company's focus over the next 12 months ?
Investing in growth
33%
30%
34%
Organic
Organic
growth
growth
22%
26%
29%
Inorganic
Inorganic
growth
growth
Oct-13
Apr-13
Oct-12
Return to shareholder
28%
Pay down
debt
debt
Paying
Paying
dividends
dividend
Buy back
stock
stock
22%
5%
5%
36%
14%
3%
3%
10%
Oct-13
Apr-13
Oct-12
of Singapore respondents
say they will continue to
place greater focus on
growth over the next 12
months
50%
of Singapore respondents
say they will pursue
acquisitions over the next
12 months
55%
of Singapore respondents
with excess cash plan to
invest on growth over the
next 12 months
13
Spotlight on Indonesia
Indonesia respondents are resorting to more
conservative strategies
Operational efficiency rather than growth has taken center stage in corporate strategies for Indonesia respondents. This
seems logical given the more conservative economic expectations leading up to the elections next year. 35% of Indonesia
respondents expect their local economy to decline over the next 12 months influenced by similar sentiment. Access to
capital, particularly debt financing is expected to deteriorate.
Given this backdrop corporate focus is more towards cost reduction and capital optimization activities.
Despite the conservative outlook predicted by Indonesia respondents, the country remains a strong
attraction for inbound investors given its low cost base and large domestic market.
►
Mixed economic prospects
Just 65% of Indonesian respondents expect their local economy to grow or remain stable, compared
with 95% six months ago. 40% of the Indonesian respondents expect the economy to grow over 3% in
the next 12 months, this is against the 6% targeted economic growth set by the government.
Indonesia’s investment rating was downgraded from ‘positive’ to ‘stable’ by S&P in recent months
which as weakened the external economic profile of the Indonesian economy. Only 65% of respondents
view that the current regulatory environment as being supportive of business growth initiatives, down
from 75% six months ago, despite various government reform initiatives.
►
Focus on operational efficiency
Indonesia respondents have opted for more cautious but balanced strategies over the next 12 months.
45% of the respondents expect to focus on cost reduction and operational efficiencies compared with
35% six months ago. Another 45% say that growth is a priority.
When asked about how they expect to use their excess cash over the next 12 months, 40% expect to
fund organic growth compared with 70% six months ago.
►
Conservative attitude to deal making
30% of Indonesia respondents say that they expect to pursue an acquisition over the next 12
months. Of these respondents who see growth as a priority, about 40% expect to focus on inorganic
growth.
However, the overall sentiment to deal outlook is very pessimistic with just 25% saying the number
of deal opportunities is improving compared with 40% six months ago.
►
14
Access to capital
Despite having lower confidence in the credit availability, there seems to be a further shift towards
leveraging. 25% of Indonesia respondents say that their gearing ratio has increased to more than
50% compared with just 10% six months ago. While 50% still maintain their gearing levels will
remain below 25%, there are signs that more companies are resorting to borrowings. 40% of
Indonesia respondents plan to use debt to finance deals, up from 20% six months ago. 35% of
respondents plan to refinance their debt obligations, compared with 15% who stated the same six
months ago.
“Indonesia’s moderating pace of economic growth indicates a new norm for corporates with a significant election in the
horizon and continuing reforms to position as an attractive for investment and growth.”
David Rimbo, Indonesia Market Leader, Transaction Advisory Services
‘Wait and see’
Q: What is your perspective on the state of the economy today and
confidence on the following at home level?
Perspective on the state of the economy
Improving
20%
Stable
Declining
Confidence level positive
45%
50%
48%
45%
41%
Oct-13
Apr-13
40%
Corporate
Corporate
earnings
earnings
40%
Oct-12
80%
41%
Employment
Employment
growth
growth
35%
5%
11%
55%
Economic
Economic
growth
growth
70%
52%
65%
52%
Oct-13
Apr-13
Oct-12
Q: Which statement best describes your organization's focus over the next 12
months?
45%
reduction
CostCost
reduction
and
and operational
efficiency
efficiency
Maintain
Maintain stability
stability
or survival
or survival
25%
Growth - Organic
35%
37%
45%
41%
10%
Growth - inorganic
20%
19%
Oct-13
Apr-13
Oct-12
20%
0%
3%
Oct-13
Apr-13
Oct-12
Q: Do you expect your company to pursue acquisitions in the next 12 months
and what is your confidence level on the deal fundamentals at home level?
% expect to pursue acquisitions
Confidence level positive
Likelihood of
closing deals
43%
35%
26%
Oct-11
Apr-12
Oct-12
Apr-13
35%
Quality of
Quality
of deal
deal
opportunities
opportunities
15%
25%
Number of
of deal
deal
Number
opportunities
opportunities
25%
30%
25%
20%
Oct-13
Oct-13
56%
67%
40%
Q: What is your perspective on the credit availability at home level?
Oct-13
45%
Apr-13
Oct-12
40%
65%
30%
41%
Improving
15%
44%
Stable
Declining
5%
15%
63%
Apr-13
Oct-12
65%
of Indonesia respondents
view the state of their
local economy is either
stable or improving, down
from 95% six months ago
40%
of Indonesia respondents
say they will use excess
cash to fund organic
growth, down from 70% six
months ago
30%
of Indonesia respondents
say they will pursue
acquisition this year, up
from 25% six months ago
45%
of Indonesia respondents
say credit availability is
improving, down from 65%
six months ago
15
Spotlight on Thailand
Growth, acquisitions and reducing debt levels are high
on the capital agenda
Corporates in Thailand have taken advantage of robust economic conditions to improve their balance sheets, invest in
growth and deploy capital to attractive markets across Asia.
The appetite for growing market share through acquisitions has also risen considerably, as the percentage of respondents
who say they expect to pursue acquisitions over the next year increased nearly four-fold.
►
Positive economic sentiment
Corporate sentiment in the Thai economy is increasingly positive given the country’s strong underlying
economic fundamentals and the gradual but noticeable improvement in the global economic landscape.
Thailand’s strong economic fundamentals include controlled inflation, interest rate of 2.5%, favorable
employment and income conditions, readily available credit and expected increase in government
spending. Private investment - which was depressed over the past two quarters – is also expected to
grow.
►
A strong shift to investing capital
Investing capital is a top priority for 73% of Thai corporates, a jump from just 30% six months ago.
Capital is expected to be invested to achieve both organic and inorganic growth. Thai corporates are
repositioning themselves to better capture growth and navigate the changing economic landscape in
SEA. The local regulatory environment is considered to be supportive of business growth initiatives, a
view shared by 77% of Thai respondents.
►
M&A appetite has improved, and Asia is top on
the list for Thai investors
M&A appetite has improved and 41% of Thai respondents say that inorganic growth will be their
priority area of focus wanting to expand their market reach to newer destinations. Thai respondents
have expressed an enthusiasm for investing across Asia, with a significant number expressing
Myanmar, Vietnam, India and Indonesia as countries of high interest.
►
Corporate balance sheets strengthen
Similar to many corporates in SEA, 52% of Thai respondents say that their balance sheets are less than
25% geared. Many Thai corporates have also resorted to raise capital taking advantage of the stable
political circumstances.
An increasing number of Thai corporates are also looking to refinance loans mainly to retire maturing
debt. It is likely that Thai corporates have already taken advantage of lower interest rates to reduce
debt costs in the previous periods.
16
"Thailand has emerged as the busiest nation for deal-making in Southeast Asia in 2013, supported by
blockbuster deals led by ambitious entrepreneurs and continued attention it receives from inbound investors
who are looking to invest into Thailand.”
Piyanuch Nitikasetrsoonthorn, Partner, Transaction Advisory Services, Thailand
Stability is driving
growth
73%
Q: What is your perspective on the state of the local economy today?
Oct-13
73%
Apr-13
27%
50%
Oct-12
33%
59%
Improving
of Thai respondents
believe that the local
economy is improving, up
from 50% previously
50%
Stable
8%
Declining
Q: Which statement best describes your organization’s focus over the next 12
months?
32%
35%
Growth Organic
CostCost
reduction and
operational
operational
efficiency
efficiency
67%
41%
Growth 5%
inorganic
Apr-13
40%
8%
Maintain 5%
Maintain
stability
or
stability or
survival
survival
0%
25%
Oct-13
22%
Oct-12
20%
Oct-13
Apr-13
Oct-12
Q: Do you expect your company to pursue acquisitions in the next 12 months?
% expect to pursue acquisitions
55%
33%
15%
Oct-12
Apr-13
Q: What is your company's current debt-to-capital ratio and how do you expect
this ratio to change over the next 12 months?
Oct-13
Apr-13
Oct-12
52%
50%
42%
Less than 25%
More than 50%
24%
25%
25%
Expectation on debt-to-capital ratio
24%
Oct-13
25%
Apr-13
25%
Oct-12
25%
33%
25% to 49.9%
of Thai respondents are
focusing on achieving
growth over the next 12
months
55%
of Thai respondents
expect to pursue
acquisitions in the next 12
months, up from just 15%
six months ago
Oct-13
Debt-to-capital ratio
73%
14%
Increase
50%
36%
45%
30%
58%
Remain constant
17%
Decrease
38%
of Thai respondents say
that retiring maturing
debt will be the primary
purpose of their
refinancing
17
Spotlight on Philippines
Transaction forecast to increase
The country’s strong economic performance, improved governance and ongoing efforts for fiscal reforms is reflected in
the overall corporate sentiment in the Philippines economy. 76% of the Philippine respondents say that their economy is
improving up from 40% six month ago. 83% of the respondents expect the local economy to continue to grow compared
with 60% six months ago.
An overwhelming majority of the Philippine respondents see growth as their top focus with a balanced emphasis on both
organic and inorganic growth. This shift in focus to growth, coupled with improving economic outlook and an uptick in
confidence is expected to result in an increased level of deal activities in the market over the next 12 months.
►
Greater confidence seen across a range of
indicators
While Philippine respondents are strongly optimistic about the state of the local economy, 58% say
that growth of the domestic economy will fall in the range of 1% - 3%, with improving sentiment seen in
employment growth and credit availability.
Improved market sentiment is brought about by the Philippines’ robust economic performance with a
GDP growth rate of 6.8% for 2012 and 7.6% for first half of 2013, as well as the country’s upgrade to
investment grade this year.
►
Balanced growth is the dominant focus
Growth is a key priority for Philippine respondents, with inorganic growth gaining significant
importance. In terms of organic growth, 80% of executives say they intend to focus on more rigorous
execution of core products or existing markets. Provided they have excess cash, a large majority of
respondents would choose to deploy funds towards paying down debt or focusing on inorganic growth.
►
Clear optimism over deal volumes
Three-quarters of respondents are confident that deal volumes will improve over the next year, though
only a third expect their own companies to pursue acquisitions during the same time period. While 75%
of executives believe the valuation gap between buyers and sellers is between 10% and 50%, opinion is
split over whether this gap will widen, stay the same or contract over the next year.
►
Increasing appetite for debt
With upbeat sentiment around economic and employment growth, executives’ views of credit availability
have improved significantly compared with six months ago. Interest of Philippine respondents in bank
debt financing has increased from 5% in the previous period to 17% given the low interest rates in the
local market. A third of the respondents are also planning refinancing activities to retire maturing debt
and optimize existing capital structure.
18
M&A on the
rise
Q: What is your perspective on the state of the local economy and your level
of confidence in the following at home level?
Perspective on the state of local economy
Confidence level positive
Economic growth
Improving
76%
40%
Short
Shortterm
termmarket
market
volatility
volatility
Equity
Equity valuations/
valuations/
market…
stockstock
market
outlook
60%
16%
0%
Declining
Employment growth
Oct-13
42%
8%
55%
35%
Apr-13
Q: Which statement best describes your organization's focus over the next 12
months?
Growth Organic
42%
reduction
CostCost
reduction
and
and operational
operational
efficiency
efficiency
42%
Maintain stability
Maintain
orstability
survival
35%
Growth inorganic
0%
Oct-13
8%
20%
8%
45%
Oct-13
Apr-13
Improve
Remain
Remain
the
the same
same
Decline
% expect to pursue acquisition
75%
45%
8%
50%
33%
17%
5%
5%
Oct-13
Oct-13
Apr-13
Apr-13
Q: What is your company's current debt-to-capital ratio and how do you expect
this ratio to change over the next 12 months?
Debt-to-capital ratio
Oct-13
Apr-13
Apr-13
Oct-12
25%
15%
25%
35%
More than 50%
Less than 25%
Expectation on debt-to-capital ratio
50%
Oct-13
50%
Apr-13
25% to 49.9%
33%
15%
Increase
25%
55%
84%
of Philippines respondents
say they will invest their
capital to achieve growth
Apr-13
Q: What is your expectation for M&A volumes in your home market in the next
12 months?
Expectation on M&A volumes
50%
of Philippines respondents
expect that their
companies will create jobs
over the next year, up
from 30% six months ago
35%
17%
Oct-13
Apr-13
58%
35%
Corporate earnings
8%
Stable
83%
60%
42%
30%
Remain constant
Decrease
42%
of Philippines respondents
will place greater focus on
investing in non-BRIC
emerging markets
58%
of Philippines respondents
believe credit availability
in the local market is
improving, up from 25% six
months ago
19
Spotlight on Malaysia
Cautious sentiments
Just 19% of Malaysia respondents expect their economy to improve over the next 12 months, down from 60% six
months ago. Given the economic outlook, Malaysian corporates have shifted focus from growth to more risk averse
strategies. Capital optimization is the top priority for driving their capital agenda activities. Corporate balance sheets
are expected to improve and refinancing activities to decline.
►
The local economy
33% of the Malaysian respondents say that their local economy is declining. Six months ago, 60% of
Malaysian respondents say that their local economy is improving and it has reduced to just 19% in the
current barometer results. Malaysia respondents say that they have lower expectations for all
economic growth, employment growth, corporate earnings compared with six months ago.
With such sentiment about the wider economy, one can expect most businesses to focus on
conservative strategies when managing their business and capital goals. 62% Malaysian respondents
say that their boardroom focus will be on cost reduction and operational efficiencies as opposed to
growth.
►
Capital optimization is driving the capital agenda
Increased pessimism in local economic growth over the next 12 months has shifted the focus of the
corporate agenda. Smart capital allocation remains high consideration and 57% of Malaysian
respondents say that capital optimization will be the central theme that will drive their capital decisions
for the next 12 months.
When asked how they would deploy their excess cash over the next 12 months 57% Malaysian
respondents say that they will invest into organic growth activities.
►
M&A appetite is low but those plan to do so are
expected to pursue larger deals
Malaysian respondents expect M&A deal volumes to decline over the next 12 months. Just 33% expect
deal volumes to improve over the next 12 months compared with 50% six months ago. Despite this
sentiment, 33% of Malaysia respondents expect to pursue and acquisition over the next 12 months
compared with 25% six months ago. For those Malaysian respondents that expect to pursue
acquisitions in the next year, the key driver is the potential they can realize by expanding into new
markets and expanding distribution networks.
►
Corporate balance sheets continue to improve
Malaysian corporates continue to have strong balance sheets with 62% of respondents say their
current debt-to-capital ratio is below 25%, compared with 50% six months ago. With low market
sentiment, board room focus on risk management and cost controls and capital optimization there is a
reluctance to depend on more debt. Refinancing appetite has also declined as only 19% of the
Malaysian respondents expect to refinance their loans in the next 12 months compared with 42% a
year ago.
20
“The overall global economic situation has made Malaysian investors more cautious and selective in their own
investment decisions focusing on larger opportunities. However , Malaysia continues to be recognized as a
preferred destination for investments because of its competitive economy and infrastructure.”
George Koshy, Malaysia Market Leader, Transaction Advisory Services
Cautious
outlook
Q: Please indicate your level of confidence in the following at the home/local
level:
Confidence level positive
33%
Economic
Economic
growth
growth
41%
39%
24%
Employment
growth
growth
45%
31%
29%
Corporates
Corporate
earnings
earnings
Oct-13
41%
43%
Apr-13
Short
Short term
term
market
market
volatility
volatility
14%
Equity
Equity
valuations/
valuations/
stock market
market
outlook
outlook
14%
36%
46%
64%
39%
Oct-12
Oct-13
Apr-13
Oct-12
Q: Which statement best describes your organization's focus over the next 12
months?
62%
reduction
CostCost
reduction
and
and operational
operational
efficiency
efficiency
Maintain stability
Maintain
or survival
or survival
23%
10%
Growth inorganic
10%
27%
Oct-13
Apr-13
23%
Growth Organic
45%
40%
31%
5%
5%
19%
Oct-13
Oct-12
Apr-13
Oct-12
Q: Do you expect your company to pursue acquisitions in the next 12 months
and what is the expected deal size?
Expected deal size
% expect to pursue acquisitions
50%
Oct-13
50%
42%
Oct-11 Apr-12
Apr-13
33%
27%
57%
83%
Oct-12
Oct-12 Apr-13
67%
US$50m or less
US$51m – US$500m
US$501m – US$1bn
Oct-13
Q: What is your company's current debt to capital ratio?
Oct-13
Apr-13
Oct-12
24%
62%
50%
42%
Less than 25%
More than 50%
14%
9%
41%
42%
29%
16%
25% to 49.9%
14%
17%
22% 11%
19%
Of Malaysia respondents
feel that the local
economy is improving,
down from 60% six months
ago
62%
of Malaysia respondents
view cost reduction and
operational efficiency as
the main focus over the
next 12 months
33%
of Malaysian respondents
expect to pursue
acquisitions in the next 12
months
62%
of Malaysia respondents
have a debt-to-capital
ratio of less than 25%
21
Survey demographics (Southeast Asia)
Please state which of the following best describes your company?
Publicly listed
49%
Privately owned
31%
Family owned
10%
Government/
State
Government/State
owned
ownedenterprise
enterprise
Private
Equity
Private
equity
portfolio company
7%
3%
Oct-13
What are your company's annual global revenues in US dollars?
$10bn or more
12%
$5bn to $10bn
10%
$1bn to $5bn
25%
$500m to $1bn
21%
$250 to $500m
$250m
Less than $250m
30%
2%
Oct-13
Which of the following best describes your job title?
C-level
48%
Head of
of business
business
Head
unit/department
unit
/ department
31%
SVP/VP/Director
21%
Oct-13
About this survey
The Global Capital Confidence Barometer gauges
corporate confidence in the economic outlook, and
identifies boardroom trends and practices in the way
companies manage their Capital Agenda — EY’s
framework for strategically managing capital.
It is a regular survey of senior executives from large
companies around the world, conducted by the
Economist Intelligence Unit (EIU). Our panel comprises
select global EY clients and contacts and regular EIU
contributors.
• In September we surveyed a panel of over 1,600
executives in 72 countries; half were CEO, CFO and
other C-level executives.
• 127 executives from Southeast Asia.
22
What is your primary industry?
Oil & Gas and mining
17%
Banking and financial
services
services
17%
Consumer products
14%
Technology
and
Technology
and
telecommunications
telecommunications
9%
Healthcare/pharmaceuti
Healthcare/
cal
pharmaceutical
7%
Manufacturing
Manufacturing
7%
Power and utilities
6%
Construction
3%
Automotive
5%
Real estate
4%
Government
Agriculture &
agribusiness
3%
1%
Others
7%
Oct-13
• Respondents represented more than 20 sectors
including financial services, oil and gas, consumer
products, technology, telecommunications, healthcare,
manufacturing, power and utilities, construction,
automotive, real estate and government.
• More than 900 companies would have qualified for the
Fortune 1000 based on revenue.
23
Taking note of the evolving sentiments, what are the
key capital considerations that will drive your
business?
H
If you are raising capital
►
►
Growth
►
What strategic options should you
pursue for non-core and capital
intensive business/products?
Is this business unit saleable and
how do you maximize value from
disposal?
Do you have the right capital
structure to enable you to fund
your strategic acquisitions?
If you preserving capital
►
►
►
►
►
►
How do you protect your core
business to retain margins and
maximize ROI?
Are you getting appropriate returns
on capital?
Are you over leveraged or are your
borrowing costs too high?
If you are not growing how do you
maximize shareholder value?
What are low capital intensive
growth strategies?
How can you unlock cash in the
business?
If you are investing capital
►
►
►
►
If you are optimising capital
►
►
►
►
►
►
L
24
Capital
Are you in the right geographic and
product markets? What is the best
way to enter new markets?
What should your growth strategy
be in emerging markets?
Which targets are most attractive
for you?
Have you considered all relevant
risks for markets we are entering?
To promote growth, should you
modify your investment
priorities/portfolio of businesses?
What are your competitors doing?
Should you divest certain or all your
businesses to create shareholder
value?
Have you achieved expected
synergies / effective integration
from your last transaction?
Do you need to move along the
value chain to gain strategic
advantage?
Do you have the right/optimal and
sustainable cost and operations
structure?
H
Notes
25
For a conversation about your capital strategy,
please contact us
Global
Pip McCrostie
Global Vice Chair
Transaction Advisory Services
[email protected]
+44 20 7980 0500
Asia-Pacific
John Hope
Asia-Pacific Leader
Transaction Advisory Services
[email protected]
+852 2846 9997
Southeast Asia
Singapore
Harsha Basnayake
Southeast Asia Leader
Transaction Advisory Services
[email protected]
+65 6309 6741
Purandar Rao
Singapore Market Leader
Transaction Advisory Services
[email protected]
+65 6309 6560
Indonesia
Malaysia
Thailand
Philippines/Guam
Sri Lanka
Resources
David Rimbo
Indonesia Market Leader
Transaction Advisory Services
[email protected]
+62 21 5289 5025
Ratana Jala
Thailand Market Leader
Transaction Advisory Services
[email protected]
+66 2 264 0777
Ruwan Fernando
Sri Lanka Market Leader
Transaction Advisory Services
[email protected]
+94 11 246 3500
Government &
Public sector
Lynn Tho
Government & Public Sector Leader
Transaction Advisory Services
[email protected]
+65 6309 6688
George Koshy
Malaysia Market Leader
Transaction Advisory Services
[email protected]
+60 3 7495 8700
Renato Galve
Philippines Market Leader
Transaction Advisory Services
[email protected]
+63 2 891 0307
Sanjeev Gupta
Resources Market Leader
Transaction Advisory Services
[email protected]
+65 6309 8688
Financial
Services
Patrick Hanna
Financial Services Leader
Transaction Advisory Services
[email protected]
+65 6309 6720
Services
Transaction
Support
Purandar Rao
[email protected]
+65 6309 6560
Merger & Acquisition
Luke Pais
[email protected]
+65 6309 8094
Restructuring
Rajagopalan Seshadri
[email protected]
+65 6309 6892
Operational Transaction
Services
Harsha Basnayake
[email protected]
+65 6309 6741
Valuation & Business
Modeling
Andre Toh
[email protected]
+65 6309 6214
Infrastructure Advisory
Lynn Tho
[email protected]
+65 6309 6688
Transaction Tax
Russell Aubrey
[email protected]
+65 6309 8690
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