New fund to fire SMEs
Some mid-sized local Small and Medium Enterprises are to benefit from Emerald Sri Lanka Fund, a private equity fund managed by NDB Zephyr Partners. This fund has set aside an annual Rs. 1.2 billion to grow local SME for five years.
The Rs. 6.5 billion fund managed by NDB Zephyr Partners and NDB is the only local investor with International Financial Cooperation (IFC), Deutsche Investitions und Entwicklungsgesellschaft mbH (DEG), Netherlands Development Finance Company (FMO) and Zephyr Management L.P. being the others.
Target sectors for the fund include healthcare, financial services, value added exports, Zephyr Management L.P. Founder and CEO Thomas Barry told the media on Monday.
It is jointly owned by NDB Capital Holdings Ltd, a subsidiary of National Development Bank Plc and Zephyr Management L.P. “Sri Lanka is poised historically to be a regional champion in South Asia. The key advantages are its literacy rate, qualified workforce and open economic policies. You do not have to invent anything, you just have to copy the Singapore model here,” Mr. Barry said. NDB Zephyr Partners Lanka Ltd. Managing Director Senaka Kakiriwaragodage said that this fund targets export oriented sectors where Sri Lankan businesses enjoy natural competitive advantage due to factors such as access to raw materials, low operating-cost structure, attractive geographical location and highly experienced workforce.
“The fund focuses on emerging businesses with significant scope for growth comprising of revenue growth and margin expansion,” he said adding that emphasis is on value addition subsequent to the fund’s investment. Areas of value addition include strategic planning, governance, management development, financial management and operational efficiencies. Emerald Fund has invested Rs. 158 million in Cleanline Linen Management Ltd which is constructing a centralised laundry facility to cater to the laundry requirement of hotels in Sri Lanka.
Mr. Kakiriwaragodage said the fund is currently finalising its second investment, which is over Rs. 800 million, in a leading consumer goods firm in Sri Lanka with operations across South Asia and was looking at another investment in healthcare in the near future.
Certain SMEs may not be able to access debt financing due to lack of availability of collateral to facilitate borrowing and lenders may be hesitant to lend to services and technology oriented businesses due to the inability to provide sufficient collateral, according to Mr. Kakiriwaragodage.
“Lenders may not be willing to provide long term loans due to the perceived risk. Their borrowing capacity of the companies may be exhausted and during the crucial growth phase SMEs do not have any credible equity funding options. There is no culture of private equity funding in Sri Lanka and Emerald Fund will address this need,” he said.