Step 1: Buy failed LTCB bank for $1.2 billion
Key point: Get the Japanese government to absorb over $28 billion in debt
Step2: Rename and revive said bank as Shinsei
Step 3: IPO 4 years later at a $10 billion valuation
Key point: Make 12X (!!!) on your investment
Key point: May be the most profitable global private equity deal ever?!?!
In the secretive world of private equity, populated by many who have made fortunes on the back of highly profitable buy-out deals, Shinsei has inspired admiration and envy, not least because few observers ever expected a Japanese deal to produce such high returns, given that the country has historically been unwelcoming to foreign investors.
David Rubenstein, co-founder of rival buy-out group Carlyle, asaid recently: “This may be the most profitable private-equity deal of all time.” He estimates that Mr Flowers could be sitting on a gain of 12 times his original investment.
The investor consortium also includes Banco Santander Central Hispano, AIG, Citigroup, GE Capital, Deutsche Bank, Paine Webber Mellon Bank, Bank of Novia Scotia and investment vehicles controlled by Jacob Rothschild and David Rockefeller.
Shinsei investor set to make $1bn [cbs.marketwatch.com]
ALSO
Times Online – Lesson well learnt from brazen buyout [timesonline.co.uk]
Yes, the big losers are the Japanese taxpayers (I know, as I am one of them.)
Still, It’s not as though the Ripplewood group stole that money. They merely took control of a horrible situation and turned it to thier profit. Look at it this way.
1) poor managment and flawed governmental oversight create a debt ridden bank that threatened to bring down the whole Japanese economy.
2) Japanese govenrnment uses tax money to bail out the bank.
3) In order to reform the bank and recover assets, the government auctions it off.
4) Only one group offers to buy the bank. No Japanese group will purchase it as such a move would topple thier organization. No one thinks that the bank can become viable.
5) Ripplewoord offers to buy the bank, but does not trust Japanese bank regulator estimates of bad debt. Asks the government to agree to buy back any bad debt not on the original estimate. Govenrment agrees.
6) Ripplewood reorganizes the banks breaking heavily with tradition Japanese banking practices. Perhaps because of this, within 2 years, Shinsei is showing a profit. shinsei return several bad loans to the government causing an uproar. The consensus is the the while the govenrment agreed to the “put” option, it did so with the understanding that it would not be used. Numerous hearing are held over Shinei’s “behavior”.
7) Shinsei IPO hits and the value of assets that the Japanese government and all Japanese banks thought were worthless, are now worth more than 10 times the sale price. Note that the government has already delayed the IPO by over a year past the original agreed date at time of purchase.
Now who is to blame?
The original chairman of the LTCB would be a nice scapegoat. If only he hadn’t committed suicide.
Ripplewood would be nice, since they made a huge profit here. Of course they only made a profit by taking a peice of garbage and turning it into one of the biggest success stories in Japan this decade.
Can’t blame the Japanese regulators though. Even though they are the ones who were complicit with the LTCB running up a billions of dollars in debt; even though they are the ones who sold off the assets to Ripplewood in a deal that was guarenteed to lose taxpayers money no matter how it turned out.
Yeah, blame the guys who are making money by investing in the largest money losing industry in world hitory. We would hate for someone to get the wrong idea.
Thanks Kakyou- I appreciate your thoughts, and agree with them.