Temasek-backed fund leads US$26m investment in Myanmar's ISP

Singapore

TEMASEK-backed Ascent Myanmar Growth Fund I (AMGF) on Wednesday announced that it will lead a US$26 million minority investment in Myanmar's leading Internet service provider, Frontiir, although it declined to name its other investors.

Lim Chong Chong, founder and managing partner of Ascent Capital, which manages the fund, said that the investment is driven by the fund's belief that Internet access is an essential service which can improve lives, reduce inequalities and drive economic growth, especially in emerging markets such as Myanmar.

In particular, it believes that Frontiir will enjoy the tailwind of Covid-19, as the pandemic is changing Myanmar's fundamentals in terms of how people live and work.

"The usage of Internet data is only going to increase and the beautiful part about Frontiir is that it has products and services that cater to all income segments in Myanmar, unlike other players that cater only to the middle and upper income classes.

"That's the first criteria for us: can this company make a positive impact on the local community, especially at the bottom of the pyramid?"

The fund has a mandate to invest in companies in the consumer, education, financial services, healthcare, logistics, technology, media, and telecommunications sectors in Myanmar.

Ascent Capital's investments all support four United Nations Sustainable Development Goals, namely zero poverty, quality education, gender equality, and decent work and economic growth.

Asked why it has taken this long to close its first investment - the fund was launched in the fourth quarter of 2018 - Mr Lim put it down to the fund's "very disciplined investment process and rigorous due diligence".

He said that private equity dealmaking can be a slow process in Myanmar because the private equity scene is still nascent. Frontiir has previously received support from organisations such as the UK-based development finance institution CDC Group, Japan's Daiwa PI and Delta Capital

Myanmar.

"Frontiir's management team and owners have had the opportunity to work with institutional investors with similar expectations as Ascent Capital in terms of corporate governance and quality of accounts and internal controls, whereas other companies that we are talking to have not had the opportunity to do so," he said. In short, private equity investment is new to them.

"Merger and acquisition activity in Myanmar tends to be driven by corporations and strategic investors, and are less so driven by private equity funds. We are an early mover."

Established in 2013, Frontiir is a data carrier in Myanmar, delivering Internet services under the name Myanmar Net. It serves 1.6 million users in more than 360,000 households and has a presence in Yangon, Mandalay, Mawlamyaing and Bago. It has plans to expand nationwide to bridge the country's digital divide and provide affordable digital services.

Ascent Capital plans to set aside additional funds from its Ascent CSR Fund, over and above AMGF's investment into Frontiir, to enhance gender inclusiveness and ensure equitable access to quality education.

This will be done through launching a programme to support capacity development of Burmese women in business, as well as providing internship opportunities at Frontiir, and subsequently its other portfolio companies.

Wai Lin Tun, also known as Godfrey Tan, chairman and CEO of Frontiir, said that AMGF's investment and additional CSR fund are timely and can provide the stimulus needed to increase access to affordable Internet, especially in the lower income regions of the country.

The Covid-19 pandemic has led to a sharp increase in demand for Frontiir's services. For instance, the Myanmar government has made e-commerce a priority in its Covid-19 Economic Relief Plan, by encouraging retail businesses to move to online commerce and pledging to develop a central e-commerce platform for local businesses.

According to the 2019 Myanmar Digital Economy Roadmap, only about 40 per cent of its population were Internet users. The Roadmap aimed to increase the percentage to 45 per cent by 2020, and 50 per cent by 2025.

AMGF's anchor investors include Myanmar's Aung Moe Kyaw, founder and co-chairman of Myanmar Distillery; Singapore's Tony Chew, co-founder of MDC Group and chairman of Asia Resource Corporation; as well as Temasek, Philippine conglomerate JG Summit, and the Asian Development Bank, which has a US$10 million or 11 per cent stake in the fund.

The fund is looking to close at least one more investment this year in either the education or consumer sector.