Emerald Sri Lanka fund to bolster SMEs 

 By Charumini de Silva

Start-ups and mid-sized SMEs could get a investment windfall from Emerald Sri Lanka Fund, a dedicated private equity entity, which has earmarked about Rs. 1.2 billion ($ 8 million) per annum to grow local businesses for five years in a venture capital takeoff that hopes to keep building beyond 2017.  

The Rs. 6.5 billion fund is managed by NDB Zephyr Partners. Speaking to the media in Colombo yesterday, Zephyr Management L.P. Founder and CEO Thomas Barry said he expected the investment pace to accelerate rapidly in 2017 and 2018, insisting that Emerald Fund will provide much needed risk capital to SMEs to achieve their true potential. 

It is jointly owned by NDB Capital Holdings Ltd, a subsidiary of National Development Bank Plc and Zephyr Management L.P.   Emerald Fund’s investors include International Financial Cooperation (IFC), Deutsche Investitions und Entwicklungsgesellschaft mbH (DEG), Netherlands Development Finance Company (FMO) and Zephyr Management L.P. along with other private sector participants. 

“Private equity is a fairly new concept for Sri Lankans. To increase the pace of investments we need a few examples of our investments and to publicise that to entrepreneurs where they will consider us more than a source of money. We hope to seize two to four investments next year,” he added. 

The fund focuses on emerging business with a significant scope for growth generally in the range of Rs. 300 million to Rs. 900 million in equity and equity-linked securities in fast-growing SMEs in Sri Lanka. However, it would even consider lower ticket size investments provided that they find a subsequent growth opportunity for capital deployment. 

He said their goals were to support entrepreneurship, financial sustainability, job creation, business skills enhancement, local wealth creation and contribute to the economic growth of Sri Lanka.  

The fund assists its portfolio companies in areas such as strategic planning, management development, financial management, corporate governance and operational efficiencies. The fund will also help firms to access international markets to optimise their capital structures, while exits will be generated via the Initial Public Offering (IPO) market or through trade sales to domestic or international buyers.

“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,” he explained.

He pointed out that Sri Lanka was now catching up fast by moving its trade tries to India, China and other South Asian countries from traditional US and European trade markets. 

In this background, he asserted that Emerald Fund was a great source for Sri Lankan companies to expand businesses not only within Sri Lanka but also regionally. 

“Right now we are working with several businesses in Sri Lanka that want to be regional champions. This is a real opportunity for Sri Lankan companies to grow their businesses. With the excellent relations this country has in the region, our dream is to see Sri Lanka become the Singapore of South Asia,” Barry quipped.  

Explaining the reasons for selecting NDB as a fund manager, he cited the development background of the bank as well as its excellent relationship with SME businesses. 

NDB Zephyr Partners Lanka Ltd. Managing Director Senaka Kakiriwaragodage said no sizable pre-IPO placement and no viable equity funding option had created a gap in the market, therefore Emerald Fund would help bridge that gap and assist SMEs. 

“Today private equity is not at the top of the mind recall, but going forward when the ecosystem gets developed people will look at it as an initial requirement,” he stressed.  

Noting that Sri Lanka was too small to focus on one target sector he said the priority sectors included healthcare, financial services, value added exports, leisure/entertainment, IT, logistics/port-related services, consumer goods, infrastructure and construction. 

Emerald Fund has invested Rs. 158 million in Cleanline Linen Management Ltd, where it is constructing a centralised laundry facility to cater to the laundry requirement of hotels in Sri Lanka.  

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.

He pointed out that NDB Zephyr’s global network and relationships will position the fund as an attractive partner for Sri Lankan businesses looking to expand into overseas markets.