Tembusu Partners sets up fund to invest in China baijiu development

CHINA's fiery Moutai baijiu, distilled from red sorghum grain, has been on investors' radar in recent years, either as a stock or a collectible via aged, special-edition bottles.

Now, investors can also participate through a fund.

Private equity firm Tembusu Partners has launched its first China Guizhou Baijiu Fund, with the Renhuai city government-linked Renhuai Moutai Flavor Liquor Industry Development & Investment Co (Jiutou) as a strategic partner.

The fund was launched on Wednesday following signing ceremonies at the China International Import Expo and the Singapore-China Trade & Investment Forum in Shanghai.

The fund will invest up to two billion yuan (S$387 million) in the procurement, storage and processing of baijiu foundation spirits in the Guizhou region. Jiutou has committed to invest up to 670 million yuan.

In a statement, Tembusu said the fund allows international investors to access the "explosive" growth in Moutai-flavoured baijiu, also known as sauce-aroma baijiu, through the early years of the baijiu production process which spans five years.

The value of baijiu appreciates with age and presents opportunities for stable returns. Christie's, for instance, said the price of a Moutai bottle at auction can range from 2,000 yuan to more than 300,000 yuan, depending on the vintage, rarity and authenticity.

The fund aims for an 8 per cent annual return, with potential upside at the end of the fifth year via the sale of baijiu spirit assets. The fund is targeting to raise 500 million yuan in its first close in Q1 2020.

Jiutou's wholly-owned subsidiary is one of five major distributors of Feitian Moutai - dubbed the "king" of baijiu - made by the Kweichou Moutai Group, based in Renhuai. Shanghai-listed Kweichou is the world's most valuable liquor company. Its market capitalisation at 1.5 trillion yuan far exceeds that of Diageo's 73 billion pounds (S$127 billion) .

A Euromonitor 2018 report expects baijiu consumption to grow by 10 per cent a year by 2022. Baijiu accounts for 90 per cent of spirit sales and half of alcohol sales in China.

Lim Hwee Hua, co-chairman of Tembusu Partners, said: "China continues to be an important and strategic market for Tembusu. Tembusu is pleased to launch (the fund) to finance promising baijiu businesses and support their development towards high-quality growth, as we expand and deepen our commitment in China's dynamic economy."

Li Wu, Jiutou chairman, said: "We're committed to investing alongside Tembusu to nurture our homegrown sauce-aroma baijiu production enterprises, the development of the Renhuai liquor production region brand and transformation of the industry."

Jiutou is a large sponsor of the development of the baijiu industry, by helping local companies raise the quantity and quality of their production for domestic and export sales.