Malaysia-based private equity firm Creador is looking to close at least four investments in 2019 as it expects valuations to get more realistic in a soft market, its founder and CEO Brahmal Vasudevan told DEALSTREETASIA.
“We’re looking at one deal in Vietnam and Indonesia, two deals in India and three deals in Malaysia. But I think realistically we will close four deals for the year. It’s also hard to tell which will come first.
“The second half of last year, we were already slowing down because stock markets were cracking and valuations were a bit steep. Now, things are becoming a bit more reasonable though I think the market is going to get a bit worse but hopefully there will more opportunities to invest in,” he said.
In terms of exits, Vasudevan said Creador expects to exit two Indonesian investments this year, one of them being private commercial bank Bank Index. The PE firm still has a “small stake” in Indonesian financier BFI Finance, having offloaded two-third of its initial holding since last year.
The $1.4-billion PE firm made headlines last week when one of its Malaysian portfolio companies, home improvement retailer Mr. D.I.Y., was reported to be exploring an initial public offering by the end of the year. It is believed that the company is seeking a valuation of RM10 billion ($2.4 billion) and aims to raise about RM1.5 billion ($326 million).
Vasudevan confirmed the listing plan although he declined to comment on valuations or the IPO size. Mr. D.I.Y. is deciding between the Hong Kong Stock Exchange and Bursa Malaysia as listing destinations.
“We’re still trying to decide which bourse to list on. Hong Kong Stock Exchange has made a compelling offer. It’s the most active IPO market at the moment and has raised most money globally. It is also where the world is currently focused on. Given our longer-term and regional plans, we wonder if Hong Kong is the better place to be. [The decision to list in] Malaysia is, of course, because Mr. D.I.Y. is a Malaysian company but we are yet to make a final decision,” Vasudevan said.
The home improvement retail chain plans to list only its domestic and Brunei operations. It will be Creador’s first Malaysian portfolio firm to go public.
“We chose to list only the local operations of Mr. D.I.Y. due to foreign restrictions if we’re to list in Malaysia. Also, many of the businesses [that are out of Malaysia] are still very young – they have only been around for a few years and are still not profitable yet. So no point of putting a loss-making business into a profitable entity, which will just drag down the overall results. So it’s simpler to list the Malaysia and Brunei businesses,” he said.
Creador invested in Mr. D.I.Y in 2016, putting in more than RM500 million ($121 million) into the home retailer in exchange for an 18 per cent stake. Confident that the company will continue to grow further after the IPO, the PE firm plans to offload only a small stake during the listing.
“The Malaysian market is quite boring at the moment, so Mr. D.I.Y. would be an interesting IPO because it still has a lot of growth. A lot of Malaysian companies go public when the business saturates, so the minority investors are not making money. In this case, this IPO has a lot of growth, so people who come in can still make money.
“Even we’re not selling all of our stake in Mr. D.I.Y. Out of the 18 per cent that we hold, we are only selling 2.75 per cent because we see a huge upside in the business, so we’d like to hold on to this for a few more years. I think the business can double in size. They’re opening roughly eight outlets a month,” he said.
Several private equity-backed businesses in Malaysia are looking to go public this year, including CVC Capital-backed QSR Brands (M) Holdings that operates KFC and Pizza Hut outlets in the region. Affinity Equity Partners-backed poultry producer Leong Hup International Bhd is also looking to list on Bursa Malaysia soon.
Vasudevan said he sees no exits for Creador’s other Malaysian business in 2019. In Malaysia, Creador has invested in local fashion brand Bonia Group, credit firm CTOS Holding, specialty bakery Bake With Yen, as well as pharmacy chain BIG Pharmacy.
“We’re still building those businesses. Malaysia is a market where we have to create deals – it’s rather sleepy at the moment. We have to go out to convince businesses to take our money. Many of them are cashflow positive, so we have to give them an idea about why they should take money from us – to grow faster and bigger.
“Like Mr. D.I.Y.’s story, they don’t really need money but they needed help to expand regionally into Thailand, the Philippines, and other markets. They also wanted to do e-commerce, among other things. This is where we came in and made a big difference to their story. We work with the companies and tell them our vision for the company – what we think can help them with,” he elaborated.
On Vietnam, Vasudevan maintains that Creador has a long-term view of the market. The firm made its first investment in the market by putting in $43.8 million into mobile and consumer electronics retailer Mobile World Group (MWG) in 2018.
“Vietnam has a lot of hype, but the reality is that there aren’t many high-quality companies. When you see many high-quality companies in that country, the funds there will also do well, like India and China, where there are strong companies and PE firms. Which is why I had said Southeast Asia’s performance isn’t very good.
“We did Mobile World in Vietnam, and we’re looking to invest in a financial institution soon but I don’t see many high-quality opportunities there. We have a very small team there – just two people and we’re making a 10-15 year bet that we will be able to find a good company, even if it means we only do one investment every three years.
Creador is currently raising its fourth vehicle, Creador IV, which is expected to hit its final close at its $550-million hard cap by the end of February. It recently secured $50 million from existing investor Asian Development Bank (ADB), bringing the total amount raised so far to $533 million, already exceeding its initial target of $500 million.
Vasudevan declined to comment on Creador IV but said its predecessor Creador III, which reached its hard cap at $415 million in 2017, is 95 per cent deployed, where the rest is reserved for follow-on investments.
Creador was founded by Vasudevan, the former managing director of India-based PE firm ChrysCapital, in 2011. The firm focuses on long-term investments in growth-oriented companies in South and Southeast Asia and has made over 31 investments across Malaysia, Indonesia, the Philippines, Vietnam and India.