Focus on pharma manufacturers

Ekuinas CEO Datuk Syed Yasir Arafat Syed Abd Kadir

PETALING JAYA: Fresh from divesting a majority stake in oil and gas (O&G) company Icon Offshore Bhd, government-linked private equity firm Ekuiti Nasional Bhd (Ekuinas) is eyeing to invest in some key companies in the pharma manufacturing and industrial machinery sectors in the current quarter.

Without going into details, chief executive officer Datuk Syed Yasir Arafat Syed Abd Kadir told StarBiz the firm hopes to close and announce two investments in the pharma manufacturing and industrial machinery sectors sometime in the second quarter of 2024.

“Generally with our investments, we acquire between 20% and 100% stakes. In deal sourcing and acquisitions, we will continue to take a capabilities-driven approach. We will maintain our focus on targets which have demonstrated capability or have strong potential to scale up the value chain, embrace disruption and move into new markets.

“Our investment appetite is currently focused on export-based businesses, pharma and healthcare, technology-driven solutions and new industries,” he added.

Syed Yasir Arafat said that in the first quarter, Ekuinas made a divestment in Icon Offshore, which the firm has been holding for over 10 years – well over its investment horizon.

Despite the challenges in the O&G sector, Ekuinas made profitable returns on its investment, he said.

In addition, he said Ekuinas has a couple of investments that are ripe for exit and it would continue to seek profitable exit opportunities.

Last month, Ekuinas sold its 50.2% controlling stake in Icon Offshore to Liannex Maritime Sdn Bhd for RM172.7mil. It still has a 5.8% stake in the O&G company.

“We are looking at deploying our dry powder in high-growth and high-value sectors that will support the growth of the Malaysian economy. In particular, we are pivoting towards investments in export-oriented sectors, taking advantage of the current level of the ringgit.

“Certain segments in manufacturing, namely pharmaceuticals, healthcare, food and industrial products are sectors which fit this profile. We are also looking at new areas that hold high potential for Malaysia and the region, such as cybersecurity and other digital services.

“We will continue to deploy funds from our Dana Asas fund, aimed at mid-market bumiputra companies. This has been our focus though not without challenge, as due diligence for smaller and younger companies is more complex,” Syed Yasir Arafat noted.

Dry powder refers to cash reserves that corporations and private equity funds have available to deploy when an attractive investment opportunity arises. For the financial year 2023 (FY23), Ekuinas funds under management stood at RM4.24bil.

In terms of the outlook for deal making this year, Syed Yasir Arafat said it would likely continue to be a challenge.

With inflation in the United States edging upwards over recent months, he said interest rates may stay elevated for a few more quarters.

As the geopolitical outlook is also decked with red flags at the moment, the fund expects the volatile economic situation to persist for at least a few more quarters, he added.

Separately, Syed Yasir Arafat said value creation and strengthening the firm’s portfolio companies remains a priority.

“We remain single-minded in our efforts to add, upskill and strengthen the digitalisation capabilities and expertise of our portfolio companies to ensure their readiness in meeting the next wave of competition.

“Equally important is finding the right talent and developing existing talent to lead with agility and momentum. Ekuinas will continue to work alongside its portfolio companies to augment their capabilities in navigating through a volatile and challenging environment,” he added.

For FY22, the fund’s portfolio companies recorded a consolidated revenue growth of 30.2% and earnings before interest, tax, depreciation and amortisation growth of 31.3%, compared with 12.3% and 27.2%, respectively, in FY21.

On the prospects of the private equity fund management industry this year, Syed Yasir Arafat said the outlook and challenges would be shaped by unprecedented uncertainties in global economics and geopolitics.

“With US-China relations tense, the Middle East in turmoil and the end of an era of cheap money with rising interest rates, the landscape is fraught with challenges.

“These disruptions are not isolated events but part of a series of ongoing global crises, leading to structural changes that affect everyone.

“Within the private equity industry, exits are proving difficult, fundraising is sluggish and rising interest rates hinder financing for dealmaking. The next few years may be lean, testing the resilience of private equity firms,” he said.

On the local front, Syed Yasir Arafat said the private equity market anticipates another challenging year for dealmaking.

“Despite an expected gross domestic product growth of 4% to 5% for this year, obstacles such as sluggish consumer demand, elevated inflation and a weakened currency loom large.

“Furthermore, uncertainty regarding policies, including potential new taxes and subsidy adjustments, compounds the challenges ahead,” he pointed out.

On another note, Syed Yasir Arafat said Ekuinas’ purpose as a private equity company and business continues to be guided by both its financial and social objectives and values, as its efforts to integrate its environmental, social and governance framework internally across its business and portfolio companies continues seamlessly.

“Through Iltizam, our corporate social responsibility arm, we deepen the impact of our initiatives to create enduring pathways to safeguard economic opportunities and upliftment, towards sustainable income.

“We are consistently and systematically reaching out to and creating meaningful opportunities and impact on the bumiputra entrepreneurs, youth, underprivileged and underserved individuals and communities,” he said.

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