More companies in South-east Asia planning to divest: survey

MARCH 20, 2018 - 6:00 AM

SOUTH-EAST Asian firms' divestment intentions have caught up to those of their global peers, according to the latest annual EY Global Corporate Divestment Study.

Of respondents in the region, 88 per cent plan to divest in the next two years, similar to the global figure of 87 per cent.

This is in stark contrast to last year's study, where just 26 per cent of South-east Asian respondents had divestment plans, compared to 43 per cent globally.

The survey of 1,000 corporate executives included over 70 from South-east Asia, of which 20 were from Singapore.

Asked why divestment intentions have risen so sharply since the previous study, Ernst & Young Solutions representatives did not pinpoint any specific reasons for the timing.

But Geophin George, transaction advisory services partner, suggested that pressure from technological change has driven firms to reassess their business.

"A lot of companies are feeling uncompetitive," he said, adding that firms in Asia might have taken a cue from those in Europe or the United States, where divestment activity has been going on for a while.

Almost seven in 10 respondents in the region agreed that changes in technology are influencing their divestment plans.

For just over half of them, the need to fund new technology investments was a factor behind their most recent major divestment.

This was the third most-cited factor, coming after a business unit's weak competitive position, and opportunistic bids.

"As soon as you're being pressed into making new investments, you need to think about costs and funding," said Vikram Chakravarty, Asia-Pacific head of strategy and managing partner for transaction advisory services Asean. The region's increased interest in divestment is overdue, he added.

In the survey, 47 per cent of companies in South-east Asia admitted they had held onto assets longer than they should have.

One reason for the reluctance might be cultural, said Mr Chakravarty, adding: "Nobody should see a divestment as a loss of face."

Rather, the strategic aspect of divestments should be acknowledged, he said.

The study found that globally, companies which conduct portfolio reviews annually - assessing which business units or brands to grow or divest - were twice as likely to exceed performance expectations in divesting "at the right time."

Geopolitical shifts may also prompt divestment.

Nine in 10 South-east Asian firms said tax policy changes "may affect" their plans to divest. Almost as many said that labour and immigration laws would do so.

Over six in 10 said cross-border trade agreements might have an effect. But Brexit was a distant concern, with 17 per cent of firms in the region seeing it as a factor, compared to 42 per cent globally.