Ex-Citi bankers shut $1 billion fund; Asia offers thin pickings

HONG KONG Fri Dec 7, 2012 2:27am IST

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HONG KONG (Reuters) - Three ex-Citigroup (C.N) bankers who raised $1 billion to invest in pan-Asia financial services have closed the fund after a string of setbacks and the region's failure to deliver hoped-for bargains in the aftermath of the global financial crisis.

Robert Morse, Wing-Fai Ng and Guocang Huan - all with long experience in Asia financial M&A - launched Primus Financial Holdings in Hong Kong in 2009, but found investment opportunities were limited, and their highest-profile deal fell foul of regulators. A spokesperson for Primus Financial Holdings confirmed the fund's closure, but declined further comment.

Primus Financial Holdings did not record a single publicly disclosed successful investment, although a person familiar with the fund's activities said it made several hundred million dollars' worth of private investments that were sold before the fund was shut down.

Morse and Huan have left the firm, selling what assets the fund had invested in and returning the rest of the capital raised to the company's investor - described by Primus at the launch as "a prominent wealthy family in Asia."

Primus Financial planned to buy assets in regional wholesale banking, insurance and asset management, but the fund's demise has prompted some rivals and former colleagues to question the approach of the prominent bankers.

Morse was Citi's Asia head of global investment banking and led the institutional client group in Asia until 2008. Huan ran HSBC's (HSBA.L) Asia-Pacific investment banking unit after a stint at Citi, and Ng left Citi's Salomon Smith Barney to join Fubon Financial (2881.TW) as head of corporate strategy in 2000.

One private equity investor, who spoke on condition of not being named, said the Primus plan was sector-specific and region-wide - in contrast to a trend for private equity to launch country-specific firms that allow dealmakers and investors to seize local opportunities. This 'regional versus local' debate is a common topic at Asian investment conferences.

Also, the strategy of focusing on financial services and on seeking controlling stakes made life difficult in Asia, where such opportunities are fewer than in developed markets.

"Given the fluctuations in deal opportunities in Asia and the challenge of converting those into deals, funds specialized in specific sectors or smaller geographies tend to be riskier," said Michael Prahl, centre director for the Global Private Equity Initiative at Singapore-based business school INSEAD. "We therefore see more pan-regional and sector-agnostic funds in Asia than in more mature and deeper markets like the United States."

MOVING ON

Morse has now moved to head up the investment management committee at U.S. real estate investment fund ROC Bridge Partners LLC, while Huan is CEO of GCS Capital, a new private equity fund which this week said it was in talks to buy the asset management arm of bailed-out Franco-Belgian group Dexia SA (DEXI.BR). [ID:nL5E8N40PT] Ng has also raised new capital, said the person familiar with the situation.

Morse declined to comment on the fund's closure, citing investor confidentiality. Ng could not be reached by email to his Primus address or on a mobile phone number provided by a source, and Huan did not return calls to his office or reply to a message left with a colleague.

Both Morse's personal information on the ROC Bridge website, and Huan's biography on the GCS Capital site, detail their banking careers, but don't mention Primus Financial Holdings - where setbacks included a blocked attempt in 2010 to buy AIG's (AIG.N) Taiwan insurance unit Nan Shan, and an abandoned bid a year later for struggling U.S. municipal bond broker Chapdelaine.

Ng and Huan also suffered a court defeat in Malaysia in 2010 with the legally separate Primus Pacific Partners fund - which pre-dated their involvement in Primus Financial - and were named in a legal dispute over unpaid rent on a house owned by Singapore state investor Temasek Holdings TEM.UL.

Primus Pacific Partners did enjoy some success investing in Chinese insurer New China Life. Company filings show it bought a 4.5 percent stake in May 2006 for around $26 million, which was sold in November 2010 for $290 million.

DEAL BLOCKED

In October 2009, AIG agreed to sell Nan Shan for $2.15 billion to Primus and China Strategic, a $111 million holding company previously known for making batteries, but local regulators sensed mainland Chinese backing for the bid, a politically sensitive issue in Taiwan.

Nine months later, the Taipei City Office of Commerce blocked Ng and three others from registering as directors of the company set up to buy Nan Shan, citing their failure to prove they were not residents of mainland China. Primus insisted no mainland money was involved, but the deal was blocked and Nan Shan was later sold to a local group for $2.16 billion.

Late last year, Primus' attempt to buy Chapdelaine also collapsed, with the U.S. broker instead being sold to Tullett Prebon Plc (TLPR.L), a London-headquartered interdealer broker.

Primus Ventures, a Singapore unit of Primus Pacific Partners, was sued in 2011 by Temasek President Lee Theng Kiat and his wife for more than $111,000 in unpaid rent and real estate agent fees on a house they leased to the fund, according to court documents reviewed by Reuters. Those papers also cited more than 45 instances of damage to the property. Primus paid around half of that amount, before an out-of-court settlement resolved the dispute.

In Malaysia, Ng and Huan locked horns with the central bank over a 20 percent stake in EON Capital Bank held by Primus Pacific Partners. Primus sued EON's directors in 2010, saying they had accepted too low a price in a $1.7 billion takeover bid by rival Hong Leong Bank Bhd KLBB.KL. Malaysia's central bank later rejected without explanation the reappointment of Ng as a director of EON Capital, and a court then dismissed the Primus lawsuit, paving the way for a deal creating the country's fourth-largest lender.

At its 2009 launch, Primus Financial Holdings was not alone in sensing cheap, post-crisis bargains in the financial sector.

"We don't anticipate buying a bank, fixing it up and selling it," Morse told Reuters in an interview then. "We anticipate buying a number of entities and integrating them and maybe later taking it public or selling the whole lot.

"But we hope to build an institution that lasts through the ages."

The office space that Primus Financial Holdings leased on the 34th floor of a tower in Hong Kong's Central district is now an outlet for the fashion brand Chanel.

(Additional reporting by Stephen Aldred and Michael Flaherty; Editing by Ian Geoghegan)

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