Japan SMEs seen in need of PE funding

Oct 13, 2014

They are reaching out into Southeast Asia increasingly, backed by regional Japanese bank financing, observes Seow Wei Qi, director of Risa Partners Asia.

Singapore-based private equity firm Risa Partners Asia is seeing appetite among Japanese small and medium-sized enterprises to expand outside their home market for the first time.

The move is being supported by Japanese regional banks, with the number of representative offices they have in Singapore having doubled over the past three years, noted Seow Wei Qi, director of Risa Partners Asia, which is backed by Japanese technologies firm NEC Group.

But private equity is “no longer just about funding”, Seow told AsianInvestor. She sees an increased focus on cultivating long-term partnerships, with the firm playing a bridging role facilitating collaboration between investee companies and Japanese SMEs.

The aim of Risa Partners Asia is to develop a more diverse pool of capital and a broad network for Japanese SMEs to tap into Southeast Asia.

“It can be challenging for SMEs to go into markets in Southeast Asia and find a local partner,” remarked Seow. Japanese SMEs are potential buyers of stakes in companies that the general partner (GP) invests in.

Risa Partners Asia can claim alliances with 170 Japanese regional banks, helping it to introduce investee companies to Japanese SME partners as well as increasing funding options.

So far, Vietnam has accounted for three of the four investments that Risa Partners Asia has made to date via the ¥9 billion ($83.5 million) Japan Southeast Asia Growth Fund it launched last year in partnership with the Development Bank of Japan.

Seow notes that the scarcity of bank finance available for private companies in Vietnam has eased, adding that the firm had taken a more focused approach on fewer countries, rather than the Southeast Asia region as a whole, since it raised its fund a year ago.

The fund’s other investment is in Thailand, which has long been a focus of investment in Asia by Japanese companies.

“Thailand or Vietnam are a hub and spoke for Japanese firms, which seek a partner in one of these two to access the surrounding countries,” explained Seow, pointing to Cambodia, Laos and Myanmar.

The GP targets deals of $5-10 million in size with a focus on Singapore and Indonesia as well as Thailand and Vietnam.

In September, Vietnam attracted one of the first investments made by the Japanese government-backed ¥57.5 billion Cool Japan Fund Inc.

Pointing to a growing trend, one private equity fund manager commented that he was seeing more leverage in Asian private equity deals. Another suggested he was seeing a trend for more leverage to be added after PE deals had closed.

For her part, Seow sees use of leverage as deal-specific, depending on whether or not adding bank financing allows the GP to attain a majority stake and whether or not the deal size is greater than the fund’s normal investment amount.