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Private Equity To Revive Asian M&A With A Focus On Oil And Gas

Dealmaking in Southeast Asia and private equity transactions are likely to give a significant boost to Asian mergers and acquisitions, which have recorded a big decline so far in the year.  

According to preliminary data from Refinitiv, total M&A value in the continent through June dropped 41% year on year to just $362 billion, the lowest level since 2013. 

Choe Tse Wei, managing director of strategic advisory at Singapore’s DBS Group, says geopolitical chaos has led to shifts in Chinese outbound investment away from North America, Western Europe, and Australia toward Southeast Asia and other emerging markets, and also taken a toll on investments into China. Outbound M&A fell by a third to $7 billion, the lowest level since 2006 with deals involving Chinese companies dropping 35%Y/Y to $125.4 billion.

Private equity (PE)-backed deals totaled $53 billion in the first half, down 37% year on year, but are expected to gradually increase as the months roll on. Asian PE firms are currently sitting on $417 billion worth of dry powder, the highest on record.

Private equity is quickly emerging as an important financier in the oil and gas markets as more traditional banks cut financing to fossil fuels. Last year, an analysis by the Private Equity Stakeholder Project and Americans for Financial Reform Education Fund (AFREF) reported that the eight largest buyout firms have put nearly as much money into coal, oil, and gas as the big banks.

According to the nonprofit groups, the PE firms, which include Apollo Global Management, Blackstone Group, Brookfield Asset Management, Carlyle Group, KKR, and Warburg Pincus, collectively oversee $216 billion worth of fossil-fuel assets--on par with the amount of money that big banks put into fossil fuels last year.

Another surprising find: the 10 largest private equity funds have 80% of their energy investments in fossil fuels.

"The billions of dollars private equity firms have deployed to drill, frack, transport, store, refine fossil fuels and generate energy, stand in stark contrast to what climate scientists and international policymakers have called upon to align our trajectory to the 1.5 degrees Celsius warming scenario," states a report cosigned by major climate groups including Greenpeace, Natural Resources Defense Project, Sierra Club and the Sunrise Project. 

"These polluting assets are shifting from the public markets, where there is greater amount of regulatory and public scrutiny, into the shadows of our financial industry, where private equity usually operates," Riddhi Mehta-Neugebauer, research director at the Private Equity Stakeholder Project, has told CBS News.

By Alex Kimani for Oilprice.com

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