Fresh from launching its new investment fund amounting to RM1bil, state-linked private equity firm Ekuiti Nasional Bhd (Ekuinas) is targeting to acquire subsidiaries of government linked companies (GLCs).
Chief executive officer Syed Yasir Arafat Syed Abd Kadir says the firm had identified several potential companies and is in talks with them.
“We are watching this space closely. A lot of these subsidiaries are within a very large group that may want to divest non core assets.
“If we buy into these companies, it would be our primary investments and we will ensure that we will drive the company forward,” he tells reporters after Ekuinas’ 2018 result briefings in Kuala Lumpur yesterday.
Syed Yasir declines to reveal the sectors and the companies, but says that there are opportunities to unlock values in these subsidiaries.
In terms of investment size, he says that Ekuinas typically spends more than RM30mil per investment and could go as high as RM300mil.
“At the moment it’s just high level talks. It is subject to their internal plans and the whole direction of the company itself, but we are watching that space quite closely,” he adds.
The new investment fund is Ekuinas’ tranche four fund that was launched earlier this year is actively looking for investment opportunities.
“For tranche four, we have not deployed any capital, but we are exploring few companies across all sectors,” Syed Yasir says.
It has two other investment funds, namely tranche two and three, amounting to RM2.5bil. They are currently fully-invested.
Syed Yasir saysEkuinas is working on closing its tranche two fund, which has been invested in the last seven years.
It is worth noting more than 60% of its tranche two fund is invested in the oil and gas sector including 95.5% stake in Orkim Sdn Bhd and 17.4% stake in Icon Offshore Bhd. The remaining are in the education, food and beverage and technology.
“This year will see us crystallising our assets under Ekuinas Direct (Tranche II) Fund as part of our prudent investment strategy to secure positive IRR and ensuring the realisation of the fund is done within the expected timeline,” Syed Yasir says.
When asked on the firm investment in Icon Offshore that was made back in 2012, he says Icon Offshore is in the midst of strengthening its balance sheet and that Ekuinas will make a decision when the exercise complete.
Despite the challenging year in 2018, Ekuinas realised RM344.4mil proceeds from its divestment activities last year. Last year it made three divestment activities including its stakes in Tranglo Sdn Bhd, which generated gross proceeds of RM114.9mil and IRR of 26.9%; the Third Party Claims Administrator (TPA) service providers, MediExpress Group and PMCare Sdn Bhd, which generated a minimum IRR of 38.8%.
In 10 years since its inception, Ekuinas has deployed its capital under three funds and recorded total realisation proceeds of RM2.7bil.
In FY18, Ekuinas Direct (Tranche II) Fund recorded a gross portfolio return of RM490.1mil, achieving annualised gross IRR and net IRR of 14% and 9.8% respectively.
Over the same period, the third fund – Ekuinas Direct (Tranche III) Fund – recorded gross portfolio return of RM53.5mil with an annualised gross IRR of 4.5% per annum.
Investment in technology
Syed Yasir says that for the fourth fund, Ekuinas would continue to focus its investment in consumer-related companies but would be allocation about 10% to 15% of its fund for investment in the technology sector.
“We are looking at a fast-growing economy and investment in the technology space is unavoidable. In the past it has always been the domain of venture capitals but as these companies matured, we are seeing PE money going into technology sector,” he says.
He adds that there is “fierce competition” among private equity players across all asset classes. The prices of assets are also on the rise. All of this has led to PE funds looking into new sectors to boost returns.
“Tech is a necessary area for us to look at and to deploy some of our capital, but it won’t be a huge focus,” he says.
Ekuinas recently completed a RM44mil investment to acquire 40% in Exabytes Capital Group as it seeks a slice of the US$3.5 trillion global Internet economy.
The acquisition marks Ekuinas second investment in a technology services company.
Launched in 2001, Exabytes is a multi-market web hosting company in Southeast Asia and serves more than 100,000 customers ranging from individuals, small to medium-sized enterprises (SMEs), public listed companies and government agencies.
Since inception, Ekuinas had undertaken investments in 41 companies through Direct Investments and Outsourced Programme, amounting to RM3.9bil.
Syed Yasir says the government has injected a total of RM3.95bil into Ekuinas since 2009. Under the Ninth and 10th Malaysia Plans, Ekuinas was expected to receive RM5bil allocation from the government.
“I would like to say that our fund size is already self-sufficient with RM2.75bil cash,” he said.
Ekuinas chairman Raja Tan Sri Arshad Raja Tun Uda said the firm has also increased the bumiputra equity ownership to RM5bil, which is 1.5 times of the capital invested, in line with Ekuinas’ vision to create sustainable bumiputra wealth and participation.
“This achievement has also led to the creation of RM6.6bil in total economic value for all shareholders, representing a multiple of 2 times the capital invested,” he said.
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