Singapore-based Credera Group is targeting to close a Myanmar-focused investment fund with a corpus of $100 million by 2017, with two greenfield investments in the manufacturing and financial service sectors already reaching advanced stage of discussions.
Since commencing trading in the country in 2013, Credera Group has prepared for its private equity (PE) fund focusing on investments in Myanmar. The firm is working on a model that will bring in capital and expertise from foreign strategic partners and work with a local Myanmarese company.
“We call them ‘Strategic green field model’. We as a fund identify a strategic partner or identify a team that will bring incredible value to the venture. We act as a bridge and provide capital to put the whole thing together,” Govind Shorewala, managing director, Credera Group, told DEALSTREETASIA.
The Myanmar focused $100-million investment fund will have participation from 10 to 12 institutional investors, basically financial institutions and foundations from western countries. “Myanmar is still not looked at by large investors who are purely there for a profit. There are some investors who aim at development plus profit. Investors who have an affinity and have a Myanmar mandate,” he said.
Shorewala is the CIO of the fund and will work with his cousin, Rahul Saraogi, who chairs the investment committee and is based in Chennai, India. Shorewala, an alumnus of the London Business School, has been based full time in Myanmar for four years and will bring experience to the Credera Myanmar Frontier Opportunities Fund. Saraogi – who has authored Investing in India – is the CIO of Atyant Capital, a $250 million India focused fund.
Future investment targets
Following the fund close, Credera is looking at investments in a cement manufacturing facility with a capacity of about 5000 tonnes a day. It is also eyeing the financial sector, particularly in SME lending space.
“Our fund will close in March 2017 and we will start investments between March and June (2017),” said Shorewala, whose mother was born in Myanmar but whose family later moved to India.
The fund is expecting to close about five transactions in two to three years in manufacturing, financial services, healthcare and education. In fact, the firm has already identified strategic partners to pursue these investments.
“Should the fund be closed, it will be a game changer in the cement industry and we are confident that it will be a revolutionary model,” said Gaurav Manghnani, head of research for Myanmar at the Credera Group.
Currently cement (in Myanmar) is largely dependent on import mainly from Thailand while the government owned cement plants are used for public projects. A few local private investors are into cement manufacturing in Myanmar while the market is picking up the use for readymade concrete blocks.
Credera Group is looking at partnering with an Indian cement manufacturer that has been operating in the country for four years. “They (Indian partner) have built at least one cement plant of that size every year. So they already understand the most efficient way to make it happen,” said Shorewala.
While preparing for the Myanmar focused fund since 2013, Credera Group has been engaged in trading of processed timber, agri and railway products in the country.Speaking on the market, Shorewala elaborated: “The good thing that has happened is the new government is in place and everyone can see transparency coming in the future, so politically for us it has become stable.
“One of biggest advantages for Myanmar is opening up in this era. The late comer advantage that Myanmar has learning from other’s mistakes,” said Manghnani.
Investment targets & challenges
Credera Group seeks partners with strong corporate governance standards and a focussed business strategy.
“In Myanmar we see many groups. They build one strong business and they diversify into 10 other businesses. They may do it extremely well but what we look at is someone who will build one or two businesses that can scale,” said Shorewala.
Shorewala said, managing to source a deal is the “biggest challenge” in Myanmar.
In a country where private banks in Myanmar provide loan with an interest rate of 13 per cent, few mergers and acquisitions are happening and most businesses are already capital rich.
For an exit, the fund will look at different methods, one of which is self-liquidating structures.
“That’s in cases where we have a strategic partner who see the same vision as us. Otherwise, our goal is to create an institution that can then be acquired by regional or global institutions who may be interested in the same sector,” said Shorewala.
Their equity fund is looking at a horizon of between four and seven years for a targeted exit. For a greenfield investment, it could take two to three years to find its feet. “I think it will always be more towards seven,” said Shorewala.
Other private equity funds that have made a foothold in the country since around 2015 with the biggest by US based TPG investing in Apollo, the telecom tower business and Myanmar Distillery Company, that produces and sells whisky in Myanmar. AIM listed Myanmar Investment International also invested in Apollo Towers and Myanmar Finance International Ltd.
Golden Rock Capital has recently invested in Myanmar Personal Care that works on perfume and expecting to reach $100 million after reaching $20 million. Anthem Asia, anther PE fund that focuses on SMEs and start-ups also has invested in a number of businesses including Revo tech, a digital agency and MOVE gym.