Malaysia Debt Ventures Bhd (MDV), a state-owned financier of technology and green startups in the country, is charting its own course to become self-sustainable.
To raise funds, the firm is planning a 2 billion ringgit ($485 million) bond programme expected to be launched by around mid-2021, said its chief executive officer Nizam Mohamed Nadzri in an interview to DealStreetAsia. MDV is also looking at setting up a venture debt fund to finance Malaysian startups.
“Our board has approved the 2 billion ringgit bond programme, which is our first standalone bond programme. We are currently discussing this with the ministry of finance and the ministry of science [Technology and Innovation]… With this, we should be able to meet our funding requirements for the next three to five years,” Nizam told DealStreetAsia in an interview.
The Islamic Medium Term Note (IMTN) programme will be flexible, allowing MDV to issue bonds based on its needs.
MDV received its own standalone credit rating last year. It was assigned a credit rating of “AA3-stable/P1” by the Rating Agency Malaysia (RAM). The rating allows MDV to raise funds from the capital market via issuance of a standalone sukuk (Islamic bond) without a government guarantee.
Last year itself, MDV had started moving away from its reliance on government assistance and restructured its financing and loan portfolio. “We can’t have a sustainable programme totally reliant on the government. The government will have other priorities,” Nizam said. MDV has been given a grant of 44 million ringgit in the 11th Malaysia Plan, a five-year economic plan from 2016-20.
The longer-term plan is to make MDV’s business less reliant on government funds. MDV has been actively exploring alternative funding sources that will match the duration and risk profile of its portfolio.
“The discussions for the bond programme with the ministries are quite advanced. We’re looking at second quarter next year at least, ” he said, adding that the firm has no immediate requirement for cash as it currently has about 600 million ringgit ($145.73 million) in cash.
“In addition to that [cash reserves], we get between 15-20 million ringgit roughly in a month in repayments. So, money is also coming back to us through the repayments,” he added.
MDV will continue to finance startups in sectors such as digitalisation, ICT, green technology, renewable energy, communications infrastructure, and e-government projects such as digitalising, Nazim said.
“Some of the funds will be channelled into areas that have been prioritised by the government such as green technology, energy efficiency, and some renewable energy projects. But the bigger part of it is digitalisation — given COVID-19, there will be large corporates and governments looking into digitalisation of services. Connectivity will be the next one [in focus],” he said.
From financing to venture debt
MDV was established by the Malaysia government in 2002 to provide flexible and innovative financing facilities to develop high-impact and technology-driven sectors in the economy. This segment is generally underserved by commercial financial institutions, particularly small and medium enterprises (SMEs).
MDV’s mandate later expanded to cover Information and Communication Technology (ICT), biotechnology, and green technology. In 2014, MDV included emerging technology as part of its technology mandate.
Since its inception, MDV has disbursed more than 12 billion ringgit, funding more than 930 technology projects, run by about 800 companies, Nizam said. Some of the companies MDV has financed include micropayment system operator MOL AccessPortal, solar project developer Suntech Energy, renewable energy firm Invest Energy, and telecommunication systems firm Netregy Systems.
MDV’s focus initially was project and contract financing for growth- or mature-stage companies. In 2017, MDV started a venture financing programme, extending financing to earlier-stage companies, in particular technology startups financed by venture capital firms.
In May this year, the government announced a 100 million ringgit Technology Startups Funding Relief Facility to help tech startups that are badly-hit by COVID-19. The fund, being managed by MDV via a soft loan from the government, aims to provide immediate and targeted cash flow support to technology startups.
Nizam said MDV has approved 10 investee companies and he expects at least 50-60 tech startups could benefit from the fund, adding that the limit a company can get is 2.5 million ringgit.
“Going forward, we will have a separate funding plan for them [startups]. What we are looking at is working with some of the registered market operators such as equity crowdfunding platforms or to look at something more like a venture debt fund, and to work with a GP (general partner) or LP (limited partner) structure, once we have a track record,” Nizam said. “The pilot programme we are running now is based on government grants.”
With the track record achieved from government grants, Nizam hopes to attract LPs for this particular programme, either on a standalone basis, together with other venture debt organisations or with the venture capital. “It could be a hybrid, equity bond fund,” he said.
Nizam, however, said he could not provide a specific timeline for the plan as it still needs to hash out a few regulatory procedures.
Why venture debt?
Nizam said the decision for MDV to go into venture debt was made in October 2017.
“At that point in time, we started to see the dynamism of the startup sector. Quite a large number of startups are coming up. VCs are showing interest in Malaysia startups,” he said, adding that there are local VCs from the private sector and Southeast Asian regional VCs such as Startup 500 and Gobi Partners coming into Malaysia.
“We saw this dynamism, and we saw the requirement, so that’s when we started talking to the VCs and to the regulatory bodies [for a venture debt fund]. Startups can’t just rely on equity,” he said. “The MCO [movement control order to contain the pandemic] has proven, you do need some sort of liquidity support. Equity is much too expensive for them.”
As tech startups grow further, Nizam said they will need to access a wide range of tools to grow. “Equity is one of the options. The other one is debt. In order for them to grow optimally, and effectively, they will need proportions of equity and debt to ensure the maximisation of returns to the shareholders and to their businesses,” he said.