Bankers Eye 2006 as Year of Asian LBO

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Byline: BRIAN KELLEHER AND ALISON TUDOR

HONG KONG/TOKYO, Mar. 12 (Reuters) a" Asiaas booming economies, strong corporate balance sheets and attractive prices are drawing buyout houses like Kohlberg Kravis & Roberts to the region.

Investment banks are adding staff in the expectation that the global private equity boom will spawn a wave of leveraged takeovers in the region, but local companies are slowly warming to the debt-heavy strategy.

KKR, Carlyle Group and others are among a growing number of private equity funds entering or expanding in Asia, and these firms plan to leverage their estimated $ 60 billion in fresh capital to maximize their returns on investment.

Investment banks, which generated $ 11.9 billion in revenue globally from these "financial sponsors" in 2005, are counting on big fees from these buyout funds while also working to convince Asian companies to embrace LBOs.

"There is still an aversion to high debt levels," said Peter Szekely, head of Hong Kong leveraged finance for Credit Suisse.

Many companies are still recovering from the Asian financial crisis of 1997-98, when excessive borrowing helped contribute to an eventual collapse in economies from Indonesia to South Korea, and prefer to fund acquisitions with cash or stock.

"I donat see corporates becoming any less conservative," said Szekely. "I certainly donat see a deterioration in balance sheets in Korea."

Despite the reluctance of companies to take on big amounts of debt to fund transactions, leveraged finance specialists at banks such as Credit Suisse, Morgan Stanley and Lehman Brothers should have plenty of work.

Leveraged buyouts of firms in non-Japan Asia nearly doubled to $ 7.7 billion last year, according to data firm Dealogic.

That pales when compared with the $ 144.5 billion in US leveraged deals last year, which marked a 150 percent increase from 2003 totals and was headlined by the $ 15 billion private equity takeover, including debt, of car rental agency Hertz Corp.

Last year, Raffles Holdings sold off its hotel business, including Singaporeas iconic Raffles Hotel, to Colony Capital in a $ 1-billion leveraged deal handled by Credit Suisse. …