Private equity firm Delta Capital has raised close to $70 million for its second investment fund, falling short of its target of $100 million, yet becoming the largest Myanmar-specific vehicle that has been raised so far.
Myanmar Opportunities Fund II (MOF II), the vehicle Delta Capital has been raising for the last year and a half, hit its final close at about $70 million in April 2018, a top executive with the firm said.
Alexandra Vanderschelden, director, Delta Capital Myanmar, said, the corpus of the second vehicle was “a good size for investments in Myanmar at this stage” even as she added that over 60 per cent of the capital (total MOF I and MOF II) had already been allocated. “We are actively sourcing additional investment opportunities,” she said.
Delta Capital seeks to invest in businesses that chase the middle-class consumption and growth themes. The investor is looking for opportunities in consumer goods and services, telecom, financial services, logistics, manufacturing, healthcare and education.
“We particularly like companies that have a unique competitive positioning and those that leverage technology to reach higher operational efficiency. We tend to avoid sectors that come with significant legacy issues and high regulatory risks,” said Vanderschelden.
Backers of MOF II include family offices from Europe and Asia, a leading regional corporate as well as three European development financial institutions.
Delta Capital, among the early movers in Myanmar, was formed in 2013 as a collaboration between Hong Kong-based Simon Murray & Company (SMC), a pan-Asian investment company, and Serge Pun & Associates (SPA) a private investment holding company owned and controlled by Serge Pun. Nick Powell leads Delta Capital as managing partner and sits on the board of the Fund as well.
Delta’s investment thesis, exit horizon
MOF II is the second fund for Delta Capital preceded by Myanmar Opportunities Fund I (MOF I), which was launched in May 2013 and raised over $50 million. With the final closing of its second fund, Delta Capital’s total assets under management has reached close to $120 million.
“Our investors and fund manager take a long-term view on the investment opportunity in Myanmar. We believe that Myanmar is uniquely positioned to experience high GDP growth over the decades to come, and that a stable political structure and an improving operating environment will allow SMEs to flourish,” said Vanderschelden.
From the second vehicle, Delta has invested $7 million for a minority stake in Meridian Capital-backed Easy Microfinance.
The ticket size for each investment made out of MOF II is expected to be in the region of $5 million to $15 million. MOF II is hoping to invest in a total of four to six companies. “We can invest larger amounts through co-investments with our limited partners,” added Vanderschelden.
From its previous fund, MOF I, Delta Capital made five investments in companies engaged in ICT services, beverage packaging and distribution, oil and gas and in a local business conglomerate.
A notable investment is in Frontiir Co Ltd, a provider of ICT services. However, Delta Capital’s bet on the energy space turned sour and Powell acknowledged that energy had been a difficult and trickier sector for the firm.
Delta Capital is looking at an exit horizon of five to seven years for its Myanmar investments and is targeting a 25 per cent internal rate of return at the portfolio level. The firm has already made one exit and is expecting one more over the next two years.
Delta Capital’s investee company Access Myanmar Distribution Co Ltd, a joint venture between Yoma Strategic, Win Brothers and MOF I has attracted global wines and spirit brand Pernod Ricard with a production and distribution investment deal.
“Our primary exit route will be trade sales to strategic investors, as we build businesses to both scale and standards that make them primary targets for investments by leading regional and global players – like in the case of Pernod Ricard,” said Vanderschelden.
Myanmar’s PE fundraising landscape and investor appetite
Apart from Delta Capital, there are a handful of other investment firms tapping the frontier market, which offers unchartered opportunities in a myriad sectors thanks to suitable demographics and growing smartphone and network penetration.
Singapore-based Credera Group has been raising a $100-million investment fund since 2016 to focus on Myanmar with plans to look into greenfield ventures in finance, manufacturing and other consumer spaces. Credera is currently in advanced talks with stakeholders but is yet to close the fund.
Golden Rock Capital, which is registered with the Monetary Authority of Singapore, has been looking at a target of $100 million for its fund. Golden Rock had, in 2016, announced that it received a commitment of $20 million.
Meanwhile, Anthem Asia is currently raising up to $50 million for its Myanmar SME Venture Fund, in which the International Finance Corporation (IFC) has proposed to invest.
“Raising capital for Myanmar is not an easy task. While many investors are interested in the opportunity, there are concerns about the risks. For most investors Myanmar is not part of the risk allocation matrix of their investment portfolio, which is an opportunity as it’s not correlated to other markets, and a challenge as they don’t have capital allocated to Myanmar,” said Vanderschelden.