Myanmar-focused private equity firm Ascent Capital Partners, which made its debut this week with an investment in internet service provider Frontiir, has collected over $80 million for its debut fund, a top executive told DealStreetAsia.
The firm has not yet closed the fundraising for its Ascent Myanmar Growth Fund I (AMGF), which was earlier said to a chase a target of up to $100 million.
Ascent Capital founder and managing partner Chong Chong Lim said the first priority is to “deploy capital,” adding the current dry powder was sufficient to meet the firm’s investment plans.
Anchor investors in AMGF include Myanmar’s Aung Moe Kyaw, the founder and co-chairman of Myanmar Distillery; Singapore’s Tony Chew, the co-founder of MDC Group and chairman of Asia Resource Corporation; and JG Summit Holdings from the Philippines. Other limited partners (LPs) include Singapore’s state investment firm Temasek Holdings and the Asian Development Bank.
“It is very important for us to have the confidence of reputed institutional investors,” Lim said. “Temasek is a very long-term investor, and that is important because Myanmar needs patient investors.”
It was challenging as a first-time fundraiser, Lim acknowledged. However, to him, the Myanmar market itself is a value proposition for the fund.
“The main investment thesis for Myanmar is significant growth potential over the mid to long term. That growth story remains unchanged,” he said.
Edited excerpts from an interview with Lim:-
Could you take us through the journey of being a first-time fundraiser? How challenging was it?
Nobody wants to be the first to the party. There is always a need for any first-time fundraiser to have LPs who believe in you. Once that is done, you need to have a unique value proposition. For us, Myanmar is a unique value proposition. And we have the Myanmar insights.
What we explained to our investors is this: Myanmar is a very nascent market. A lot of things are very backward, including corporate governance. If you look at the PE space in Myanmar, a lot of the regional funds – the ones at the boutique size – have been active in the country for the last five to seven years but it has been difficult to fly in twice a month and try to understand the market. Whereas we are present on the ground, and I have been working for Myanmar conglomerates for a good number of years while also bring an international mindset. That is a big advantage.
Did the COVID-19 situation make the fundraising tougher?
It is [challenging] because investors want to preserve their balance sheets to support their existing GPs. They want to see how COVID-19 develops before they commit new capital. In addition to that, some investors have their own financial challenges.
We are lucky, to some extent, to have raised over $80 million to focus on deploying capital. We have not been actively fundraising, but when there is a need to raise more capital, the time will come.
You have Temasek as an LP. How significant is it?
It is very important for us to have the confidence of reputed institutional investors. And it is not just about the capital. Ascent Capital is a new brand, so having high-profile LPs, such as Temasek, helps a lot. Temasek has made a lot of investments in Southeast Asia, so they also bring that strategic network to us and in the future, to our investee companies. Temasek is a very long-term investor, and that is important because Myanmar needs patient investors.
What kind of companies would you be looking at for potential investments?
We are a growth capital investor, so we invest in companies that are mostly already EBITDA-positive. There are not that many tech companies (in Myanmar) that have managed to scale to the size of our target range, $10-15 million. So for any opportunity where we can apply $10 million, or even $5 million, these are usually companies that are already profitable.
Tell us more about Ascent Capital’s CSR fund.
Even as Ascent Capital is a traditional private equity fund, one of our key considerations is whether the investments can make a positive ESG impact on the country. Our CSR effort is also in line with our investment philosophy of generating more ESG returns. We support the UN’s sustainable development goals, setting aside an amount every year for these causes. At the same time, we want to do it together with companies that we invest in, which will create a multiplier effect.
The CSR fund does not come from the investment fund. It comes from the GP’s commitment.
Myanmar has recently seen more investments into its conglomerates. Are investors shying away from younger companies?
It depends on the mandate and interest. Some investors prefer more mature companies with steady growth. Some investors prefer to take a more portfolio approach and put small stakes into younger but hyper-growth companies.
So what is the potential for companies in operation for about three to five years?
It comes down to the standard ingredients of whether you have been able to build a scalable business, with a strong management team, that can create positive impacts on the country, and of course something that attracts foreign investors.
If you look at five years ago, that was when the telco industry just opened up. There have been good companies while there have also been many that have not been as successful. Frontiir is definitely one of those that have emerged as a winner. Investors are still interested.
But sometimes it is about euphoria. The euphoria now is more managed compared to three to five years ago, when the sector was opening up and everybody was rushing into what they saw as a goldmine.
Frontiir acquired a US company, Termaxia, earlier this year. While outbound deals are still limited, how significant is the acquisition?
Firstly, it is an investment into a team that has very strong capabilities in cloud services. With this, they are able to bring the cost of cloud services and data centres to a level that is relevant for a frontier market like Myanmar. Frontiir has seized the opportunity to go into a number of value-added services – that is the rationale behind the acquisition. It is significant because in Myanmar today, a lot of the investments are inbound. Most of the other outbound investments were portfolio investments, whereas this is acquiring a team that can contribute to the company’s core business.
While Myanmar is viewed as a long-term investment market, has COVID-19 become significant enough to shift sector opportunities?
The main investment thesis for Myanmar is significant growth potential over the mid to long term. That growth story remains unchanged. The sectors which have significant growth potential remain the same, such as consumer, education, financial services, logistics, TMT and healthcare. It may slightly tweak in two ways. One, certain sectors like healthcare, pharmaceutical and TMT will probably receive a higher level of interest for obvious reasons because COVID is creating a tailwind for them.
Second, COVID potentially will lead to an acceleration in terms of digital adoption and transformation in Myanmar. Take microfinance, where the processes are still very manual. With COVID increasing the challenges, technology will become a more important enabler for businesses across sectors. This is not merely a Myanmar trend. What CEOs across all countries tried to do in terms of digital transformation for their companies in the last five years – COVID has managed to do that in eight weeks.
In the microfinance segment, despite rising demand for loans, is there any cash flow issue?
For MFIs in Myanmar, there appear to be some short-term issues. Regulators are encouraging the MFI operators to give the borrowers a bit more time to repay their loans. Interest rates by the banks have dropped but MFIs’ interest rates have been fairly the same. There will be some short-term capital considerations, but hopefully, in the coming months, that will also improve because the Myanmar government’s economic recovery plan has put in place the measures to help the sector get back to what it was before. The government recognizes the MFI sector plays a very important role in ensuring that people at the middle to bottom of the pyramid have access to financial services.
Even as the Myanmar stock market is very new, do you consider the exchange for exits?
It will be quite some time before Myanmar will get to the level of its neighbours. Whether it is a viable exit for us? Not in the short to medium term. With what we invest today, we are looking at it over the next 7-10 years. So, if we take the horizon of 10 years, then it is definitely a viable exit.