ADB invests to spur SME growth in ASEAN, PRC
The Asian Development Bank (ADB) is investing up to $25 million in a
new fund designed to support the growth of small- and medium-sized
enterprises (SMEs) in ASEAN countries and the People's Republic of China
(PRC).
The ASEAN China Investment Fund II, which is seeking to raise $250
million in total capital, plans to invest in companies that will benefit
from increasing trade between the ASEAN bloc and the PRC.
In January 2010, the ASEAN-PRC Free Trade Area - the largest in the
world by population, covering 1.9 billion people - came into effect.
SMEs are the lifeblood of many Asian economies, providing the bulk of
employment in some countries, and livelihoods for the poor, women, and
other vulnerable groups.
ADB's investment, which will be capped at 25% of the fund's share
capital, will help leverage interest from other investors to raise money
in the capital markets in the wake of the global economic crisis.
It follows ADB funding of $15 million in 2004 for the similarly
targeted ASEAN China Investment Fund.
"ADB's investment in the fund is intended, in the long term, to help
increase regional trade, economic growth and private sector development
in Asia," said Robert van Zwieten, Director in ADB's Private Sector
Operations Department. ADB aims to boost access to finance for SMEs,
contributing to increased trade and investment among ASEAN countries,
and between ASEAN and the PRC. Investing in SMEs will help generate jobs
for the vulnerable, including women, and help close the gap between the
poor and the rich.
In addition, ADB's new environmental and social safeguard policies
will be incorporated in screening potential target SMEs, supporting
environmentally sustainable and socially responsible investments.
The fund will make minority equity and equity-related investments of
$5 million to $20 million. The investments will be aimed at companies
which need capital to finance expansions, acquisitions, joint ventures,
and restructuring, and will benefit from regional trade.
The investment allocations target is 50% in the ASEAN region and 50%
in the PRC.
The fund will have an eight-year life from final closing, and will
aim to exit investments over an average period of three to five years.
It will be managed by UOB Capital Partners LLC and advised by UOB
Venture Management Pte. Ltd., both subsidiaries of United Overseas Bank
Ltd. (UOB). UOB is the sponsor and lead investor, with a capital
commitment of $30 million. Other substantial commitments or interests in
the fund have been received from development finance institutions such
as French Development Finance Institution, Proparco.
Given the tougher post-crisis financial environment, the fund faces
potential risks such as its overall investment strategy, increased
competition for investments, exit and currency risks and other barriers.
Various measures to mitigate the risks will be taken, including
expanding the number of ASEAN countries targeted for investment, and
broadening coverage in the PRC.
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