UK's CDC to invest $10m in BD thru' Swedish co

A Z M Anas

The UK's Commonwealth Development Corporation (CDC) will put US$ 10 million into a Swedish-financed private equity firm, as it looks to garner the potential of Bangladesh's recession-proof economy, its top boss has said.

Richard Laing, chief executive officer of the British development finance institution, has said his organisation is on an investment trail and would funnel the fund through the Bangladesh unit of Brummer and Partners to ensure that companies in emerging economies have access to "patient" capital flow.

Last year, Brummer and Partners, which manages $ 7.0 billion assets across Europe and Asia, established the Frontier Fund with $ 53 million. This year the World Bank's private lending arm International Finance Corporation (IFC) also provided it with $ 10 million to invest risk capital in Bangladesh's responsibly managed companies.

"The key thing of private equity is patient. It's not looking for 1-2 years for return," he said in an interview last week.

"We see tremendous opportunities. Emerging markets have 130 private equity firms. Of them 30 are in India, but few in Bangladesh," he said.

CDC's net assets have more than doubled since the beginning of 2004, from 1.2 billion pounds to over 2.3 billion pounds. It also helped mobilise 2.3 billion pounds of third-party capital thanks to its investments in funds managed by Actis and Aureos.

In January 2009, CDC mapped out a new five-year investment policy in accordance with its shareholder - the Department for International Development (DFID).

Under the policy, the corporation aims to make more than 75 per cent of new investments in low-income countries including Bangladesh and at least 50 per cent in sub-Saharan Africa.

Currently, South Asia and sub-Saharan Africa are the largest destinations for CDC investments.

Last week, Mr Laing and his board were in the city as part of the investment exploratory mission, as the group visualizes Bangladeshi companies as the future of its business.

Despite the global recession, Bangladesh showed robust resilience, having managed to grow 5.9 per cent in the 2009 financial year, a slight drop from 6.2 per cent a year earlier.

The recession-proof economy may have prompted the CDC board to look into Bangladesh market, and Mr Laing called it "the next stage of exciting investment opportunity."

The CDC boss said Bangladesh has the capacity to attract equity investment equivalent to one per cent of its economic output, and also said private equity industry makes up two to three per cent of GDP in mature economies.

Although such fund was not available in Bangladesh in the past, the CDC top executive has estimated that this country can tap at least US$ 1.0 billion in private equities.

"Still, the share is small. That leaves an option to go after," he told the FE.

CDC prefers an intermediated approach to enable it leverage capital from other investors, increasing capital flows to markets where there is great need.

It made its debut investment in a Bangladeshi non-bank financial institution in 1981, holding as much as 70 per cent of stakes in IPDC. Just a year after, it invested in Monno Ceramics Ltd, now a leading ceramic manufacturer.

Subsequently, it made a string of investments in companies like Beximco Group, KAFCO, Meghnaghat Power plant, United Leasing and BRAC Bank Ltd.

Its portfolios by sectors are as diverse as financials, energy and utilities, infrastructure, consumers, telecomm, healthcare and agri-business.

"CDC is a long-term investor and most of the funds that we invest in have a ten-year life. We are therefore able to look beyond short-term fluctuations in value," Mr Laing added.