Singapore PE firm Tembusu sets up $285m fund to back Chinese liquor firms

Baijiu liquor in Zunyi, Guizhou Province, China. Photographer: Nelson Ching/Bloomberg

Singapore-based private equity firm Tembusu Partners has partnered with a government-linked company in southwestern China’s Guizhou province to launch a fund, which will invest up to 2 billion yuan ($285 million) in the country’s liquor industry.

Tembusu set up the debut China Guizhou Baijiu Fund in partnership with Renhuai Moutai Flavor Liquor Industry Development & Investment (Jiutou), which has ties with the local government in Renhuai city, Guizhou – the birthplace of China’s national distilled liquor brand, “Maotai.”

The new fund, officially launched on Wednesday, will inject 2 billion yuan into the procurement, storage and processing of top-quality liquor foundation spirits within Guizhou province, with Jiutou committing to invest up to 670 million yuan ($96 million).

The fund will allow international investors to access the explosive growth in Maotai-flavoured liquor, also known as sauce-aroma liquor, through the early years of the production process. The production process spans five years.

“The value of baijiu [liquor] appreciates with age, thus presenting opportunities for stable investment returns,” said Tembusu in a statement.

According to a Euromonitor report in 2018, the consumption of baijiu, a category of at least a dozen Chinese liquors made from fermented sorghum and grain, is set to grow at a compound annual growth rate (CAGR) of 10.1% by 2022. Baijiu makes up 90% of total spirits sales in China and half of China’s alcohol sales, representing a market of great investment opportunities in the country.

“China continues to be an important and strategic market for Tembusu. Tembusu is pleased to launch the first Guizhou Baijiu Fund to finance promising baijiu businesses and support their development towards high-quality growth, as we expand and deepen our commitment in China’s dynamic economy,” said Lim Hwee Hua, co-chairman of Tembusu Partners, in the statement.

Tembusu Partners, founded in 2006, is a private equity firm that invests in early and growth-stage companies within the emerging Asian market comprised of China, India and Southeast Asia. The company supports portfolio firms through mezzanine and equity financing, as well as operational expertise to help them grow.

The company, with operation in Shanghai and Guizhou’s capital city of Guiyang, has completed more than S$250 million ($184 million) worth of private equity transactions to date. Its portfolio companies span diverse industries, ranging from education and healthcare to technology and oil & gas.

It was the first and only foreign private equity fund manager to be granted with the Qualified Foreign Limited Partner (QFLP) status in Guizhou province from the State Administration of Foreign Exchange in 2018. The QFLP status accelerates the process for foreign investments into domestic enterprises in China by creating an “express lane” for regulatory approval and taxation, thereby bypassing the issue of foreign currency convertibility.