Private equity major Warburg Pincus, whose portfolio company Converge ICT Solutions recently raised $600 million in the Philippines’s second-largest IPO, is bullish about the listing window opening wider for Southeast Asian enterprises in the near future.
For an infrastructure business like fibre-optic broadband service player Converge, taking it public would derisk the investment by getting access to public capital as well as support from the local banks in the market, said Warburg Pincus managing director and head of Southeast Asia Jeffrey Perlman during his opening keynote session at DealStreetAsia’s Asia PE-VC Summit 2020 on November 24.
“We’re hugely convinced of the market size. The company’s [Converge] target in the next five years is to cover 50 per cent of Filipino households, which we think is achievable,” he said.
Warburg Pincus’s other businesses have also tapped the public market route with logistics real estate platform ESR conducting its $1.6-billion listing last year. ESR also plans to launch an initial public offering for ESR Kendall Square REIT, comprising South Korean assets, targeting to raise $321 million from its proposed offering in December this year.
“Now you have multiple ways to exit. You can potentially access the local REIT markets. These are large aggregators of assets that you are potentially able to sell into platforms like ESR or GLP,” Perlman added.
On whether ARA Asset Management, which was taken private in a Warburg-led deal in 2016, would consider going public again, Perlman said, ARA “was incredibly successful as a public company for decades, … it would get a very warm reception if we were to bring it back to the market.”
In the technology space, where exits by way of IPOs in Southeast Asia, in general, are hard to come by, Perlman sees a good opportunity for some of the regional tech players to go public over the next few years.
“Public market investors do want more exposure to Southeast Asia. They just don’t have another way to access it other than for this next wave of companies to eventually list,” he predicted.
Perlman pointed out that tech businesses have not intentionally delayed their public listing.
“They need to demonstrate proof of concept for their business and eventually a path to profitability for public market investors to be receptive. I think we’re now reaching that inflexion point where some are being able to demonstrate that,” Perlman reasoned during a fireside chat themed “The Battle for Southeast Asia”.
He also observed that businesses in SE Asia need a fair opportunity like their counterparts in other markets like China and India to use capital to grow before turning profitable.
Funding gap in SEA
However, Perlman pointed out that the region faced the challenge of access to growth capital. “[The region has] a lot of good companies, and what’s going to be the key is making sure they get the funding so that they can become unicorns in the market.”
The funding gap may be somewhat narrowing with several early-stage VCs moving up to growth equity and larger PE firms [such as Warburg] looking at tech deals.
The region has also become a battlefield for strategic investors from China and the US who are vying for market shares. If China’s Tencent and Alibaba have taken a lion’s share in the region’s e-commerce and financial services sectors, US tech giants such as Facebook, Paypal, Google and Microsoft have also made their forays, mainly funnelling their capital into the region’s key platform apps.
There will be continued competition amongst these overseas strategic investors, according to Perlman. “As China looks to export a lot of talent and technology, Southeast Asia is the most natural fit. At the same time, some of the large US strategic players have had a huge presence in this part of the world. We all have to be prepared that it’s not going to change anytime soon.”
Tech drives opportunities in data centres
As technology evolves along with every sector of the economy, there will be “a huge shift” from the old-economy real estate to new-economy real estate, which is driven and enabled by technology, Perlman opined.
“The shortfall in terms of modern supply [in Southeast Asia] is even more pronounced in data centres than it is in logistics. As we look forward over the next decade, there’s a huge opportunity within data centres,” he said.
Modern real estate assets have been one of the untapped areas in Southeast Asia, and opportunities are yielding from the markets of Indonesia, Vietnam and Thailand.
“Investors are looking towards where they think there’s a greater likelihood for cap rate compression,” Perlman said, adding that data centres, in the broader set of modern logistics, is what Warburg Pincus-backed businesses are focused on in the region.