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BUDGET 2017

New co-investment fund to help businesses go overseas

Tuesday, February 21, 2017 - 05:50

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Up to S$600 million in government capital will be co-invested with Singapore-based enterprises in a new International Partnership Fund (IPF) to help them scale up and internationalise.

Singapore

UP to S$600 million in government capital will be co-invested with Singapore-based enterprises in a new International Partnership Fund (IPF) to help them scale up and internationalise, Finance Minister Heng Swee Keat said on Monday.

The amount will be managed by Heliconia Capital Management, a subsidiary of state investment company Temasek Holdings.

With a focus on Asian markets, the joint investment would enable local firms to partner other Asian companies to either extend product lines, brands or value chains, or to gain access to markets, channels and technologies.

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To qualify, Singapore-based firms must be headquartered here, and record annual revenues of no higher than S$800 million.

The lack of specifics about the fund has left analysts and association heads debating on the target group for this programme.

Suan Teck Kin, senior economist at UOB, said: "It's too early to say as we do not have much details on the IPF yet. However, this could be the first such 'co-investment' scheme by the Singapore government to help companies to internationalise .

"As the IPF scheme is through equity investment and will therefore have a higher risk exposure, eligible companies will likely be those that are deemed to have immense potential but lack capital to grow or scale."

He added that this is very similar to what Temasek Holdings did in Singapore's early years.

Kurt Wee, President of the Association of Small and Medium Enterprises (ASME), is pessimistic on the benefits of the fund for smaller firms.

"My sense is that the fund is more targeted at bigger and more established companies. It's picking the winners instead of providing support for the smaller SMEs to go overseas. Broad-based internationalisation schemes continue to elude SMEs."

He remarked that funds that are led by the government-linked companies such as Temasek Holdings have tended to invest in more established or initial public offering (IPO)-ready firms.

"The government is often of the perspective that if you are a more substantial size, you are more ready to go overseas, but we don't feel that. Even smaller, less-established SMEs are capable of going into the region."

Ho Meng Kit of the Singapore Business Federation (SBF), on the other hand, saw the measures positively - despite the federation having issued a press statement expressing disappointment with the underwhelming short-term Budget 2017 measures.

"If you want to internationalise, you need scale. I think they are looking at larger companies - larger companies would offer the most bang (for your buck), as they have a good brand name and are better able to make inroads overseas. It makes sense to give it to the larger enterprises for more impact."

He added that smaller companies have existing schemes from IE Singapore that they can tap, such as the Global Company Partnership Grant.

In the Budget, Mr Heng also announced the enhancement of the International Finance Scheme (IFS) to enable more enterprises to take on more overseas projects.

Firstly, it will catalyse private cross-border project financing for smaller, local infrastructure developers by co-sharing the default risk of lower quantum non-recourse loans.

Secondly, it will expedite financing for projects undertaken by larger firms in higher-risk developing markets by providing a share of the needed sovereign risk insurance coverage.

These measures will be in addition to the work of Clifford Capital, which is partially owned by Temasek Holdings. It was set up in 2012 to finance overseas projects by Singapore companies. To date, over S$2.4 billion has been committed.

Desmond Teo, partner in Financial Services Tax for Ernst & Young Solutions, said: "While this is not new, it echoes the government's commitment to broaden its support to Singapore firms, both small and large, in undertaking cross-border projects."

SBF's Mr Ho pointed out that gaps in infrastructure financing were already addressed in the Committee on the Future Economy report released last week. "There is demand in the region for infrastructure, and we are good at offering project-management services. This is a good business for us, so it's good for government to come in and recognise there's a gap. There are risks in emerging markets, and co-sharing the risks allows more companies to take part."

Sonny Bensily, chief executive and founder of Prime Structures Engineering, sees the increased support in project finance as a step in the right direction.

Despite his company's track record of successfully taking on large-scale projects such as the floating platform of Marina Bay Sands SkyPark and Changi Airport Terminal Three, he said his biggest challenge is getting financing from local banks when going abroad.

"When we go overseas, we need to get an advance payment guarantee from our Singapore banks. If I go to a local bank, quite often I need to put collateral for the equivalent amount. But if I do the same project in Singapore, the local bank will normally need only 10-15 per cent of collateral."

He hopes that with the enhanced IFS, the maximum cap for credit facilities to support overseas expansion can increase from the current S$30 million to S$50 million.

Toby Koh, group managing director of Ademco Security Group, which has operations across six markets, thinks that the enhancements will be helpful for businesses, but the question lies in the ease of application.

"New policies always look good, but my concern is always over how practical and easy it is to apply and qualify for such schemes. I hope that qualification for such schemes will also be based on track record and years of operations."

The Ministry for Trade and Industry will provide more details at the upcoming Committee of Supply debate.

HIGHLIGHTS

  • Up to S$600 million in government capital for a new International Partnership Fund to co-invest with Singapore-based firms
  • Enhanced International Finance Scheme that will catalyse:
    - Private cross-border project financing to smaller Singapore-based infrastructure developers
    - Financing for projects in emerging markets
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