PETALING JAYA: Taking the road less travelled, an upcoming private equity (PE) fund is aiming to support the growth of bumiputra-run, late stage high-tech companies in what seems to be untapped investment opportunities.
Plans were underway for Green Packet Bhd to roll out a RM500mil BumiTech Fund through a general partner setup with Singapore-based PE firm Kendall Court, which will be known as GP Kendall Capital Partners.Green Packet executive director Tan Kay Yen (pic below) said the fund would be looking primarily at bumiputra companies because of the abundant opportunities.
“It’s in the bumiputra space where we feel that there’s an opportunity for public private collaboration.
“This is where we come in in terms of funding support, fostering joint ventures (JVs) and consortiums and then providing the company with the technical know-hows and capital, ” he told StarBiz.
It seemed timely after the Presidential election in the United States, as the world heads towards the decoupling of the United States and China.
A Joe Biden administration would not defuse the ongoing trade tension between the two countries and experts across the globe believed that the rivalry of the two economic giants may intensify as far as technology is concerned.
The only consolation is, Biden is expected to be less confrontational than Donald Trump, who waged the economic war with China in 2018.
With this plot setting the economic tone over the medium to longer term, South-East Asia and Malaysia are expected to continue benefiting from the unabating conflict which will see more companies diversifying their locations.
Tan said the objective of the BumiTech Fund was to push the companies to upscale, expand their local and global networks and eventually export their technology product and services, which will be vital in line with the exponential growth of IR4.0.
Among the benefits for the bumiputra entrepreneurs would be the upgrading of skill sets, employment opportunities for high-skilled jobs, improving productivity and profitability and to venture into overseas markets. Data from CB Insights showed that investment into the technology space has grown three-fold from 2013 to 2019 and is expected to grow by another three fold between 2020 and 2025.
Most of the investments, around 54%, come in at the seed or angel funding stage and as it moves down towards series C, D and E+, the investments start to taper off.
This is understandable as investors would want to hop on the early ride and when it burns, it would not be that severe.
“They don’t burn off so much money because the early stages don’t require large volumes of investment.
“And this is where we saw an opportunity and why the fund is tailored to focus on the late stage, ” he said.
Tan said the late stage companies could either be small listed companies or unlisted companies, because the number of listed bumiputra companies against the total listed companies was not balanced.
This presented opportunities to bring the private companies to an initial public offering (IPO).
For context, 212 out of 959 listed companies in Malaysia are tech-based companies while 203,593 or 15% of non-listed companies play in the tech space.
Out of the 212 listed companies, only 18.5% are bumiputra-controlled.
“They are profitable but they are not at the size that you can go for IPOs or their market is only local. There’s no regional story.
“There is still a lot of growth in the late-stage companies. It’s not that they don’t have the ability, it’s the complacency, ” Tan explained.
Being a limited partner, Green Packet is committing up to 20% or RM100mil to the BumiTech fund, the first of many funds under the general partner setup.
The fund is also soliciting commitments from a select group of public and private sector investors who have strategic or commercial interest in Malaysia’s technology segment and those who are geared to capitalise on the “early mover advantage” to capture attractive opportunities.
Other limited partners have also voiced their commitments to park money into the fund, such as the Chinese PE fund Orient Excellent, state-owned central financial enterprise China Orient Asset Management and electronic conglomerates Konka and Huaqiang Group.
The BumiTech fund is looking at around eight to 10 investments at RM50mil to RM80mil each.
In ensuring optimal diversification of the fund’s portfolio, Tan said investments for single projects would be no larger than 20% of the fund size, a maximum of 25% for a particular sector and not more than 25% for overseas business, to ensure that the investments remain Malaysia-focused.
“Why so? Because we want to bring these guys overseas, that’s one of the agenda.
“Green Packet, being a tech company, concentrate on certain areas but we have the opportunities from overseas technology partners that want us to utilise their technology for the Malaysian market or regional expansions.
“We have all these partnerships that we can bring to the investee companies ourselves, ” said Tan.
The BumiTech Fund will primarily invest in substantial minority stakes with strong minority shareholder rights including board representation.
It may also selectively consider acquiring majority stakes in partnership with experienced operators or management teams.
It will also generally invest in the capacity of a value-accretive strategic investor wherein it can provide pro-active assistance towards business development, operational know-hows, effective management and sound governance of its investee companies.
Tan planned to have the first close of the entire fund towards the first quarter of 2021 and the company is also doing due diligence on a few companies that the fund has set its eyes on.
One of its first major investments would be in chipmaker Silterra, should Green Packet be successful in acquiring it from Khazanah Nasional Bhd.
StarBiz had reported that Green Packet had updated its binding offer of US$62.5mil for the company, assuming the equity conditions were retained and US$81.2mil in an alternative binding offer, if the equity conditions were removed.
The portion of Green Packet’s investment will come from the BumiTech Fund.