Southeast Asia Capital Confidence Barometer...Southeast Asia Capital Confidence Barometer October 2014 A significant increase in those who are seeking to grow their businesses in the

October 2014 | ey.com/ccb I 8th SEA edition

Southeast Asia

CapitalConfidenceBarometerEmbracing the inevitable

Southeast AsiaCapital Confidence Barometer October 2014

A significant increase in those who are seekingto grow their businesses in the region over thenext 12 months.

Significant increase in those who expect to seetheir deal volumes grow over the next 12months. 84% also expect the M&A market toimprove over the next 12 months.

Majority expect their deal values to be belowUS$50m with a focus to acquire bolt-onbusinesses.

Big increase in companies that want to pursueacquisitions in the region. It’s the highestsentiment in two years.

• See page 7

• See page 13

• See page 11

• See page 12

64%

53%

73%

82%

A big increase in SEA companies that believetheir local economies to be improving. Thissentiment is driving regional executives to bebolder in their corporate strategies over thenext 12 months.

68%

• See page 3

Embracing theinevitable

A note from Pip McCrostie, Global Vice Chair, TransactionAdvisory Services

Our 11th Global Capital Confidence Barometer predicts healthy growth for M&A globally,which should take the market back to levels last seen before the financial crisis.

Acquisitive appetite has increased and deal fundamentals — credit, cash and prices —are strong, as is confidence in economic stability. The biggest indicator of this positivesentiment is deal pipeline, which has increased by a remarkable 30% since April. Inaddition, two-thirds of executives expect M&A pipelines to expand further over the nextyear — more than double the number expecting expansion six months ago.

As we predicted in our previous Barometer, 2014 has seen a big increase in multibillion-dollar deals. Now, increasing competition at the top end and a renewed focus on growingcore businesses will fuel more middle-market deals.

The majority of acquisitive companies are now focusing on M&A to strengthen their corebusiness, with an eye to boosting market share, managing costs and improving margingrowth.

Megadeals are set to continue. However, the next chapter of the M&A story should bemiddle-market deals fueling an M&A rebound globally.

Capital Confidence Barometer | 1

A note from Harsha Basnayake, ASEAN Regional Managing Partner,Transaction Advisory Services

Our latest Capital Confidence Barometer indicates that companies in Southeast Asia areriding the economic stability in the region by adopting a sharp focus on growth andembarking on M&A as a route to consolidating that growth. Appetite to embark on M&Ahas been all time high since we introduced the Southeast Asia edition of the Barometer.53% of the respondents say that they will pursue an acquisition over the next 12 months.

Number of deal opportunities, quality of deals and closure rates are all up with 76%expecting the M&A markets to further improve over the next 12 months. More companiesare working on over two deals in their pipeline and a majority of these falling into belowUS$50 million category. 56% of the respondents see their deals to be bolt-ons to theirexisting businesses while the remaining 44% are pursuing opportunities to expand theirportfolio and keeping alive the traditional Southeast Asian conglomerate appetite.

Asked about their confidence level in the local economies 68% of the respondents viewthem to be improving with another 28% indicating that the local economies are stable.Lifted by the stable economic sentiments, a significant majority of the respondents alsoexpect corporate earnings as well as job creation to be up across our core geographies –Singapore, Indonesia, Thailand, Malaysia, Philippines and Vietnam.

With this macroeconomic sentiment, a significant majority of SEA respondents havedeviated from the usual cautiousness that we have read in our past Barometer results.Companies are more bullish about their deal outlook, bold in their acquisition strategies,hungry and creative about their financing and rigorously testing and challenging their corebusinesses. There is also a wider recognition that shareholder influence is keeping the C-suite on check and driving change in corporate strategy.

These are good signs and they are inevitable. As the region gets ready to embrace theASEAN Economic Community, Southeast Asia based corporates have to become bold andconsolidate to maintain their competitiveness. Embracing the inevitable now will onlyboost their prospects for the future.

Macroeconomicenvironment

“There is a significant change in the mood in Singapore. 72% of Singaporebased executives view that local economy to be improving. Given their focus,I expect this view to not just be about Singapore but the wider region. Thisgreater confidence in local economies are driving the deal sentiment.“

Purandar Rao, Singapore Market Segment Leader, Transaction Advisory Services


“70% of Malaysian executives view that the local economy to be improvingcompared to just 23% one year ago. We see this in the improvement in theGDP, which is expected to grow close to 6% in 2014. There is also a lot ofconsolidation and restructuring moves by Malaysia corporates in recentmonths riding on this confidence.”

George Koshy, Malaysia Market Segment Leader, Transaction Advisory Services

The number of Southeast Asia (SEA) basedexecutives view their local economy is improving hasgrown from 49% one year ago to 68%. Greaterconfidence in local economies allow companies to bebold in driving growth.

Singapore Thailand Indonesia

6%66%

28%

41%

59%55%

36%

30%

Malaysia Philippines Vietnam

70%36%

64%

65%

35%

16%

8%

76%

0%

20%

80%

0%

36%

64%

Declining

Stable

Improving

21%

7%

72%

0%

60%

40%

0%

40%

60%

Declining

Stable

Improving

SEA executives express a growingconfidence in the stability of the localeconomy

Oct-13 Apr-14 Oct-14

68% of SEA executives see the regional economy tobe further improving over the next 12 months.Another 28% believe that their local economiesare stable.

As the region gets ready for 2015, a key milestonefor the creation of ASEAN Economic Community(AEC) greater confidence in economic stability issignificant. Such sentiment will drive companies to bebold in their growth strategies and deal making.

Despite a continuation of disruptive externalinfluences, greater confidence in local economieshave always provided the foundation for SEAcorporates to grow their businesses.

Confidence in market indicators drivingpositive hiring intentions

Riding on corporate confidence about the localeconomies, companies are more confident abouthiring. Across the region 40% of the executivesindicate that they expect to create jobs compared tojust 29% six months ago. More importantly, thenumber of those who believe that they will reducetheir workforce have dropped to just 3%.

This positive job outlook is also consistent with SEAexecutives’ expectations about corporate earningsand the overall macro-economic environment.

Q: What is your perspective on the state of the localeconomy today?

Improving Stable Declining


19%

32%49%

43%

45%4%

68%

12%

Q: With regards to employment, which of the following does yourorganization expect to do in the next 12 months?

Create jobs/ hire talent Keep current workforce sizeReduce workforce numbers


14%

49%

37%

0%

69%

31%

6%

22%

72%

Declining

Stable

Improving

0%

27%

73%

20%

25%

55%

5%

27%

68%

Declining

Stable

Improving

35%

20%

45%

20%

20%

60%

5%

32%

63%

Declining

Stable

Improving

32%

45%

23%

25%

45%

30%

5%

25%

70%

Declining

Stable

Improving

Singapore

Indonesia Malaysia

VietnamPhilippines

Thailand

28%

9%

44%

25%

31%

47%

44%

32%

65%

62%

47%

72%

78%

87%

59%

9%

18%

45%

50%

45%

60%

60%

50%

68%

67%

82%

45%

45%

45%

40%

50%

40%

60%

60%

64%

81%

73%

86%

27%

18%

14%

27%

60%

30%

45%

40%

65%

65%

90%

80%

59%

17%

8%

41%

70%

70%

90%

82%

73%

91%

82%

72%

29%

21%

21%

80%

20%

90%

70%

80%

60%

90%

90%

48%

24%

25%

39%

54%

37%

65%

61%

60%

71%

79%

85%

Outlook for corporate earnings showsstrong growth

Corporate earnings outlook among SEA executivesshow a very big improvement compared to 12 monthsago. 85% of executives are confident about theoutlook for corporate earnings across the regioncompared to 39% six months ago.

Executives in all of the six core markets in the regionhave expressed a uniform sentiment.

Similar strong positive sentiment is expressed withregard to the stock market outlook in the region.

Increased global political instability is thegreatest risk to corporate confidence

SEA executives see the increased global politicalinstability influenced by the Ukraine and Russiatensions as well as ongoing Middle East conflict tohave the greatest risk on their businesses, and thepotential to undermine the economic prospect in theregion. Significantly, concerns about slowing growthin emerging markets have fallen.

While these issues are visible, SEA executives seem tohave factored them in when predicting theirexpectations for next 12 months both for the localeconomies as well as the M&A outlook.

Q: Please indicate your level of confidence in the followingat the local level

Q: What do you believe to be the greatest economic risks toyour business over the next 6-12 months?



18%

10%

28%

21%

25%

6%

16%

17%

21%

40%

Oct-14 Apr-14

Singapore

Indonesia Malaysia

VietnamPhilippines

Thailand

100%

Equity valuation/stock market outlook

Corporateearnings

Creditavailability

Short-termmarket stability

Equity valuation/stock market

outlook

Corporateearnings

Creditavailability



outlook

Corporateearnings

Creditavailability



outlook

Corporateearnings

Creditavailability



outlook

Corporateearnings

Creditavailability



outlook

Corporateearnings

Creditavailability



outlook

Corporateearnings

Creditavailability


Increased globalpolitical instability

The effects of taperingof qualitative easing

Slowing growth inemerging markets

Pace of structuralreforms in Eurozone

Inflation


“Indonesian market has been growing solidly. From inbound investorsperspective, a lot of people had taken a wait and see approach because of theelection and political transitions. I would say that we are emerging from aperiod of caution to a period of cautious optimism for growth.”

David Rimbo, Indonesia Market Segment Leader, Transaction Advisory Services

“Thai executives sentiment is not a surprise. While the economy has a lot ofheadroom to show improvement, we have entered a period of stability. Thaicorporates are going to take advantage of this opportunity and position theircompanies for growth.“

Ratana Jala, Thailand Market Leader, Transaction Advisory Services

“Corporate sentiment in the Philippines show that most executives are stillbullish about their expectations. Good progress has been made to open theeconomy and further liberalize industries such as financial services. Investorinterest is cautiously continuing to be high in the Philippines.”

Renato Galve, Philippines Market Segment Leader, Transaction Advisory Services

Growth is once again a strong focus for SEAexecutives. Confidence in the local economies andthe road map for ASEAN Economic Community isboosting corporate appetite to be bold and take morerisks when setting the strategic direction.

“When you are in the middle of stable economic growth, good access tocapital – they are the best times to challenge the “status-quo”. Companies inSoutheast Asia have to position for better and more forceful competition asAEC becomes a reality. There has to be smarter capital allocation decisionsthat challenge business units and more boldness to recycle capital. There hasto be investment for productivity efficiency and innovation. These are nottimes to be cautious”.

Vikram Chakravarty, Capital Transformation Leader, ASEAN Region


Corporatestrategy

12%

46%

12%

24%

12%

17%

New sales channels

More rigorous focus on core products /existing markets

Companies are seeking growth morerigorously than before

Focus on growth over the next 12 months is thedominant sentiment among the wider majority of SEAexecutives. As ASEAN gathers economic momentumthere is opportunity for businesses to consolidateand grow.

Interestingly no one has indicated that they arefocused on survival.

This focus on growth is not at any cost as 23% of theSEA executives continue to view cost reduction andoperational efficiencies as continuing focus areas forthem.

Organic growth is driven by riskier andlonger term strategies

Riding on the economic sentiments in the region, SEAcorporates are taking on more risk and embarking onlonger term strategies to drive their organic growth.

SEA executives have come to recognize that therehas to be more focus on research and development,newer products and portfolio change to drive growth.

Our barometer results show that SEA corporates areready to embark on more complex activities such asswapping non core businesses to acquire bettertechnology, know how and different product andservice portfolios.

Such strategies will ready them for growingcompetition as AEC opens its doors for more andmore sophisticated global players.

Q: Which statement best describes your organization’s focusover the next 12 months?

7%

35%

55%

8%

38%

36%

13%

23%

18%

3%

64%

Growth Cost reduction and operational efficiencyMaintain stability Survival

Q: What is the primary focus of your company’s organicgrowth over the next 12 months?

Higher-risk

Lower-risk




9%

7%

21%

5%

12%

8%

20%

24%

0%

10%

24%

37%

Investing in new markets

Exploiting technology to developnew markets / products

Changing mix of existingproducts and services

Increase R&D / productintroductions

Increase R&D / productintroductions

Changing mix of existingproducts and services

Exploiting technology to developnew markets / products

More rigorous focus on coreproducts / existing markets

% focus on growth

47%39%

55%

36%

64%

0%

20%

40%

60%

80%

Oct-12 Apr-13 Oct-13 Apr-14 Oct-14

Shar

ehol

der

activ

ism


Shareholder influence onboardroom agendaWhile shareholder activism has a lot more room to influence the C-suite and boardroomsin a disciplined manner, dominant shareholders are beginning to influence the C-suiteagenda. Only 5% of our respondents say that this is not the case.

Q: Which of the following has been elevated on your boardroomagenda as a result of shareholder activism? Select up to two.

With growing success investor influence to challenge management strategies aregaining momentum even in the Southeast Asia as businesses enter low but stablegrowth. Cost management, portfolio optimization, innovative business swaps or jointventures and returning cash are key areas of focus.

As a result, management teams are becoming conscious to manage shareholderactivism. In the context of Southeast Asia, sovereign wealth funds, corporateconglomerates and families are driving strategies change in many of our markets.CEOs and C-suite executives have to become active in monitoring signs of shareholderpressures and perform portfolio reviews and continue to challenge their businesses.

Q: How are you preparing to manage any shareholder activism?

Cost reduction

Sharebuy-back

Cash dividendpayments

Strategicdivestment

Portfolioanalysis

Spin off/IPO

Our shareholdershave not raised

these issues

Acquisitions

50% 25%30%39% 3%5%13%

Notapplicable

Nothing - we areconfident in ourcurrent strategyand not actively

preparing foractivism among our

shareholders

Conducting an"activist audit" -

continue withimprovement around

cost, efficienciesand performance

Ensuring we haveopen and proactive

lines ofcommunications with

our shareholders

Makingmanagement

changes as a resultof activist

intervention

Conduct on-goingportfolio review to

grow revenue,increase margins an

optimize value

Monitoring earlywarning signs foractivist pressure

17% 24% 31%6% 14%5%3%

21%


Global changes are reshapingSEA corporate strategiesExecutives around the world expect global megatrends, particularly rethinking governmentand digital transformation – to have significant impact on their business and acquisitionstrategies. This is equally applicable to Southeast Asia.

Q: Which of the following will impact your core businessstrategy most in the next 12 months? Select up to two.

Governments worldwide are rethinking their strategies and policies in response to hugechallenges. From building social safety nets in key emerging markets to reducing deficits anddebt in developed countries, governments are trying to meet these challenges withoutdampening economic expansion. These changes have far-reaching implications for business,creating an urgent need to stay agile, keeping up with policy changes and ensuring complianceand collaboration with public-sector agencies.

Driven by shifting expectations and needs by both employers and employees, the traditionaltalent contract is being rewritten. An increasing number of mobile, part-time and self-employedworkers are changing the nature of work and the workplace. The move to a more flexibleworkforce will provide more opportunities for collaboration and productivity, as well asacquisitions. Dealmaking in many industries, especially those that are high-tech or IP-rich, willcenter on the battle for talent. In the context of Southeast Asia we are beginning to see thistrend in more mature markets such as Singapore.

In contrast to the overall trend toward a focus on the core, technology assets are in demand innearly every sector. Emerging technologies are combining with advanced networks, computingand new ways of communicating to fundamentally change businesses. As companies adapt tothese advances, dealmakers in all industries will need to decide how they strategically invest intechnology. Front-end early adapters will be the most attractive acquisition targets, offeringinnovative and nimble strategic capabilities to acquirers.

Q: Which of the following will impact your core acquisitionstrategy most in the next 12 months? Select up to two.

Glo

balm

egat

rend

s

In an inter-dependent world these megatrends will continue to influence corporate decisionmaking, and alter business models and investment strategies. SEA corporates will have toconsider the implications as they continue to grow.

Digitaltransformation

Rethinkinggovernment

Resourcefulplanet

Globalrebalancing

Future ofwork

Cybersecurity

42% 23%26%30%38% 3%20%

Cybersecurity

Resourcefulplanet

Globalrebalancing Future of work

Reconfiguringthe financial

system

Digitaltransformation

Rethinkinggovernment

24% 38%18% 37% 52%22%1%

Reconfiguringthe financial

system

M&A outlook

A significant majority of the executives see the M&Amarket improving across the SEA markets. Over 55%see at least two deals in the pipeline with a very highexpectation to see that pipeline improving over thenext 12 months. Overall the deal appetite is highwith a strongest activity in the coming year to belargely focused on the mid market.

“With strong economic sentiment and ready access to capital focus on M&Aacross sectors and markets in the region is showing a good outlook. Thereis increased levels of attention that is being devoted by corporates – local aswell as multinational – competing with financial players to secure the rightbusiness. However, less than 50% see likelihood of closing deals. Thissignals that selling appetite in the region is low and sellers are notmotivated just by looking at the price on offer.”

Luke Pais, M&A and PE Leader, ASEAN


Executives in SEA expecting to seestronger M&A market over the next 12months

76% of SEA executives expect the M&A markets toimprove locally compared with 51% who held such aview six months ago.

This sentiment interestingly is expressed acrossall markets.

Growing confidence in the local economies, optimisticexpectations in corporate earnings, ready access tofinancing are all strong attributes that are drivingM&A sentiment.

Singapore Thailand Indonesia

Appetite for M&A activities reboundsignificantly

53% of SEA executives expect to pursue acquisitionsin the next 12 months. This is the highest appetiteover the past two years. It’s a strong signal thatperhaps companies are also resorting to M&A as ameans of growth.

Likelihood of closing deals, quality of acquisitionopportunities and number of acquisition opportunitiesare all showing a strong positive trend. Despite this,the confidence level for closing deals remain less than50% reflecting the persisting challenges indeal making.

Q: Do you expect your company to pursue acquisitions inthe next 12 months?

Q: Please indicate your level of confidence in the followingat the local level (% positive):

37%

25%

41%

24%

53%

0%

10%

20%

30%

40%

50%

60%

Oct-12 Apr-13 Oct-13 Apr-14 Oct-14

43%

33%

34%

43%

29%

25%

61%

54%

42%

Number of deal opportunities

Quality of deal opportunities

Likelihood of closing deals


3%13%

84% 77%

23%

36%

33%67%

40%

Q: What is your expectation for the local M&A market inthe next 12 months?

Improve Stay the same Decline


Malaysia Philippines Vietnam

60%18%

82%

25%

75%

Likelihood ofclosing deals

Quality of dealopportunities

Number of dealopportunities

133

122

13%64%

18%

23%

82%

Apr-14

Oct-14

Deal intentions are bullish as pipelines areexpected to grow

Given the size of our businesses in the region andrelatively small in-house M&A teams, a majority ofSEA corporates carry one to two deals in theirpipeline. Renewed focus on M&A no doubt will place astrain on limited management bandwidth anddedicated deal resources as companies will look toscrutinize investment opportunities to find the beststrategic fit.

82% of the SEA executives expect the deal pipeline toimprove over the next 12 months. This is a significantshift in sentiment compared to six months ago.

Companies with smaller pipeline also show thestrongest appetite to improve their pipelines.

Q: How many deals of all sizes do you have in your pipelinetoday?

Oct-14 Apr-14

Increase Remain constant Decrease

30%

36%

19%

2%

13%

28%

55%

5%

7%

5%

1

2

3

4

=>5

Q: How do you expect your deal pipeline to change over thenext 12 months?


Correlation analysis between current and expected pipeline

6%

24%

67%

94%

76%

100%

33%

100%

1

2

3

4

>=5

Cur

rent

pipe

line

Increase No change

Expected growth in the next 12 months

Total deals in respondent’s pipelines

Oct-14

Apr-14

42%

80%

25%

20%

33%

100%

Oct-13

Apr-14

Oct-14

58%

20%

100%

14%

40%

28%

40%

Oct-13

Apr-14

Oct-14

75%

50%

67% 33%

25%

50%

Oct-13

Apr-14

Oct-14

55%

56%

62%

11%

22%

33%

34%

22%

5%

Oct-13

Apr-14

Oct-14

20%

72%

67%

40%

14%

33%

40%

14%

Oct-13

Apr-14

Oct-14

33%

83%

25%

17%

75%

67%

Oct-13

Apr-14

Oct-14

Smaller middle-market deals are drivingthe M&A wave

Not surprisingly less than US$50m single deal valuesare driving the M&A volumes in SEA. This is not atrend limited to this region. In our Global survey toowe have noted the growing momentum in the middlemarket sized deals.

The majority of companies are focusing on acquiringbusinesses in their core sectors, with an eye toboosting market share, managing costs andimproving growth.

A lot of the SEA businesses that are ripe for pickingare those that are constrained for growth due tointernal limitations. As a result one would expect amajority of SEA deals to be small, ideal as bolt-onacquisitions that will either compliment existingbusinesses or provide a platform for growth.


Q: What is the maximum single deal value expected overthe next 12 months?

42%

33%

73%

22%

22%

21%

36%

45%

6%

Oct-13

Apr-14

Oct-14

Less than $50m $50m-$250m $251m and above

“Deal size in SEA is a major issue for some of the multinationals and PEfunds that want to do over US$100m valued deals. This is bound to frustratethese investors in our markets. I think successful investors are those thathave taken the pain to acquire mid-sized businesses and grow. This trend willprevail in our region.”

Sahala Situmorang, Indonesia based M&A Partner

Singapore

Indonesia Malaysia

VietnamPhilippines

Thailand

Less than $50m $50m-%250m $251m and above

Stable valuations underpin positive dealsentiment

Half of SEA respondents to the survey expect lessthan 10% gap in value expectations between buyersand sellers. 74% of the SEA respondents also viewthat this gap will not change over the next 12 months.

75% of the SEA respondents also expect pricing toremain at current levels over the next 12 months.

All of these are positive attributes that will encouragedeal making over the next 12 months.

Q: How do you think that buyers' expectations currentlycompare to sellers' (valuation gap)?

11%

60%

29%

24%

54%

22%

13%

74%

13%

Contract

Stay the same

Widen

Q: Do you expect the valuation gap between buyers andsellers in the next 12 months to:

Q: What do you expect the price / valuations of assets todo over the next 12 months?

41%

45%

14%

36%

44%

20%

14%

75%

11%

Increase

Remain at currentlevels

Decrease




Remain atcurrent levels

2%

34%

50%

13%

1%

Significantly higher(25% or more)

Somewhat higher(10%-25%)

The gap is small(<10%)

Somewhat lower(10%-25%)

Significantly lower(25% or more)

“Valuations are increasingly being scrutinized with lot more vigor in deals now.Shareholders and regulators are testing management decisions on pricingacross the region. We are also seeing a stable bid spread and this is furtherconfirmed by the barometer results when respondents say that the price gap isbelow 10%.”

Andre Toh, Valuation and Business Modelling Leader, ASEAN Region

7%

28%

65%

Deal making focuses on core businesses

Majority of SEA respondents are looking to acquirebusinesses in their core sectors. They are mostlymotivated by cost reduction or margin improvementopportunities, expanding into new markets, andacquire talent. 56% of the acquisitions are seen to bebolt-on to existing businesses.

What is interesting though, an increased proportionof SEA executives are indicating that the targets thatthey are looking at could be either in or outside oftheir core businesses. The conglomerate appetite isvery much alive in SEA corporate culture.

It is also encouraging to see that 44% of the SEArespondents view that the deals that they aretargeting will be transformative. Such deal sentimentamong SEA corporates reflect the mood to take morerisks and challenge the core businesses.

Q: What are the main drivers impacting your M&A strategyover the next 12 months?

56%

44%

Q: Are your M&A dealsplanned in or outside yourcore sector?

Q: Your planned M&Aactivity will mostly be:


We are looking both inside andoutside of our core sector

We are looking outside of ourcore sector

3%

3%

6%

11%

24%

26%

37%

37%

38%

44%

56%

Navigate regulatory issues

Leverage regulatory / legislativeopportunities

Optimize tax efficiencies

Acquire assets at a discount -opportunistic M&A

Technology / intellectual property

Share in existing geographical markets

Improvements to supply chain

Moved into new products / serviceareas

Acquire talent

Move into new geographical markets

Reduce costs, improve margins

We are looking to acquirecompetitors/similarcompanies in our core sector

Moved into new products/serviceareas

Acquire assets at a discount-opportunistic M&A

Leverage regulatory/ legislativeopportunities

Transformative (high valueacquisition which significantlychange the size of acquirer)

Bolt-on (complement currentbusiness model)

“When venturing outside of the core businesses, it is important for SEAexecutives to focus on the commercial growth prospects of the target. Whendeal sentiments are high and market conditions are bullish – these are the timesto be more vigilant to secure the future prospects of the deal. A thoroughcommercial diligence on the target embedded into the deal process is gooddiscipline for success.”

Joongshik Wang, Corporate Finance Strategy Leader, ASEAN Region

Leverage regulatory/legislativeopportunities

Technology/intellectual property

Balance sheet strength providessignificant capacity to drive growth anddeal making

Over 76% of all SEA executives have indicated thattheir corporate balance sheets are less than 25%leveraged. It is a significant improvement comparedto six months ago.

Low leverage is providing corporates greaterfinancing capacity for growth as well as M&A.

58% of the SEA executives expect the debt-to-capitalratio to increase, signaling an increased appetitefor debt.

Q: What is your company’s current debt-to-capital ratio?


Alternative financing and debt are mainsources of financing for deals

Alternative financing through recycling capital andexchanging businesses to create innovative JVstructures as well as private capital are positioning assome of the primary sources of deal financing.

Capacity to absorb more debt is the secondsignificant source of deal financing. Despite interestvolatility risks, low leverage among corporates andliquidity in the SEA markets are providing stablefinancing options for SEA companies.

Q: What is likely to be the main source of your company’sdeal financing in the next 12 months?

Q: How do you expect your company’s debt-to-capital ratioto change over the next 12 months?

25%

35%

5%

56%

36%

37%

19%

29%

58%

Oct-13

Apr-14

Oct-14


10%

8%

31%

51%

4%

13%

35%

48%

2%

1%

21%

76%

75%-100%

50%-74.9%

25%-49.9%

Less than 25%

Increase Remain constant Decrease

3%

5%

45%

47%

Equity

Cash

Debt

Alternatefunding

Top investment destinations


Top five investment destinations for SEA respondents

Top inbound investors

Singapore Thailand Indonesia Malaysia Philippines Vietnam

US Malaysia South Korea Australia Malaysia India

India US Japan China US UK

Australia China Australia Singapore Peru UAE

UK Japan Thailand South Korea India Peru

China India Singapore Indonesia Italy JapanTop

inbo

und

inve

stor

s

USChina

Malaysia

India

Singapore

Raising: Do we have the right capitalstructure to meet our strategicpriorities?

With an active focus on growth andhealthy balance sheets, companies areexpecting to take on more leverage tofund deals; 29% of executives expectto focus on raising capital.

A strong Capital Agenda should be at the core of allstrategic boardroom decisions. It is the frameworkfor all growth and capital management questions.

Investing: What is the best way for ourcompany to grow — and is it aligned to

our core business?

Preserving: How can weimprove the performance ofour assets?

Optimizing: What steps canwe take to maximize our

portfolio’s performance?

As companies come out of survival modeand focus on growth, executives are nolonger focused on preserving capital but arenow turning to other Capital Agenda areas.

Companies are actively beginning tofocus on investment, building

dealmaking rigor and discipline, andsetting the stage for later growth; 13% of

companies are devoting their attentionand resources to investing.

More than half (58%) of executives areplanning to optimize capital and

preparing to increase their focus ongrowth and strategic dealmaking.


Companies are focused on optimizingtheir allocated capital

Abo

utth

issu

rvey

The Global Capital Confidence Barometergauges corporate confidence in theeconomic outlook and identifiesboardroom trends and practices in theway companies manage their CapitalAgendas — EY’s framework forstrategically managing capital.

It is a regular survey of senior executivesfrom large companies around the world,conducted by the Economist IntelligenceUnit (EIU). Our panel comprises selectglobal EY clients and contacts and regularEIU contributors.

• In August and September, wesurveyed a panel of more than 1,600executives in 62 countries; more thanhalf were CEOs, CFOs and other C-level executives. Of this 120executives are from Southeast Asia

• Respondents represented 18 sectors,including financial services, consumerproducts and retail, technology, lifesciences, automotive andtransportation, oil and gas, power andutilities, mining and metals, diversifiedindustrial products and construction.

• Companies’ annual global revenuesranged from less than US$500m togreater than US$5b: <US$500m(24%); US$500m— US$999.9m (17%);US$1b—US$4.9b (34%); and >US$5b(25%).

• More than 800 companies would havequalified for the Fortune 1000 basedon revenue.

• Company ownership was publiclylisted (72%), PE/portfolio-owned(12%), privately owned (8%), family-owned (4%), and government/state-owned (4%).


Cont

actu

sFor a conversation about your capital strategy,please contact us:

Global Asia-PacificPip McCrostie John HopeGlobal Vice ChairTransaction Advisory [email protected]+44 20 7980 0500

Asia-Pacific Managing PartnerTransaction Advisory [email protected]+852 2846 9997

Southeast Asia SingaporeHarsha BasnayakeASEAN Regional Managing PartnerTransaction Advisory [email protected]+65 6309 6741

Purandar RaoSingapore Market LeaderTransaction Advisory [email protected]+65 6309 6560

Indonesia MalaysiaDavid RimboIndonesia Market LeaderTransaction Advisory [email protected]+62 21 5289 5025

George KoshyMalaysia Market LeaderTransaction Advisory [email protected]+60 3 7495 8700

Thailand Philippines/GuamRatana JalaThailand Market LeaderTransaction Advisory [email protected]+66 2 264 0777

Renato GalvePhilippines Market LeaderTransaction Advisory [email protected]+63 2 891 0307

Sri Lanka ResourcesRuwan FernandoSri Lanka Market LeaderTransaction Advisory [email protected]+94 11 246 3500

Sanjeev GuptaResources Market LeaderTransaction Advisory [email protected]+65 6309 8688

Government & Public Sector Financial ServicesLynn ThoGovernment & Public Sector LeaderTransaction Advisory [email protected]+65 6309 6688

Patrick HannaFinancial Services LeaderTransaction Advisory [email protected]+65 6309 6720

Services

Transaction Support Capital TransformationPurandar [email protected]+65 6309 6560

Vikram [email protected]+65 6309 8809

Mergers & Acquisitions Valuation & Business ModellingLuke [email protected]+65 6309 8094

Andre [email protected]+65 6309 6214

Restructuring Infrastructure AdvisoryRajagopalan [email protected]+65 6309 6892

Lynn [email protected]+65 6309 6688

Operational Transaction Services Corporate Finance StrategyVikram [email protected]+65 6309 8809

Joongshik [email protected]+65 6309 8078

Transaction TaxEng Ping [email protected]+603 7495 8288


Notes


EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction andadvisory services. The insights and quality services wedeliver help build trust and confidence in the capitalmarkets and in economies the world over. We developoutstanding leaders who team to deliver on ourpromises to all of our stakeholders. In so doing, weplay a critical role in building a better working worldfor our people, for our clients and for ourcommunities.

EY refers to the global organization, and may refer toone or more, of the member firms of Ernst & YoungGlobal Limited, each of which is a separate legal entity.Ernst & Young Global Limited, a UK company limitedby guarantee, does not provide services to clients. Formore information about our organization, please visitey.com.

About EY’s Transaction Advisory ServicesHow you manage your capital agenda today will defineyour competitive position tomorrow. We work withclients to create social and economic value by helpingthem make better, more informed decisions aboutstrategically managing capital and transactions in fast-changing markets. Whether you’re preserving,optimizing, raising or investing capital, EY’sTransaction Advisory Services combine a unique set ofskills, insight and experience to deliver focused advice.We help you drive competitive advantage andincreased returns through improved decisions acrossall aspects of your capital agenda.

© 2014 EYGM Limited. All Rights Reserved.

APAC no. 12000308ED None

This material has been prepared for generalinformational purposes only and is not intended to berelied upon as accounting, tax, or other professionaladvice. Please refer to your advisors for specificadvice.

ey.com

Documents

Southeast Asia Capital Confidence Barometer...Southeast Asia Capital Confidence Barometer October 2014 A significant increase in those who are seeking to grow their businesses in the