CAF takes the lead in ASEAN thrust

China Daily (Hong Kong) - - ROUNDTABLE - By EVE­LYN YU in Hong Kong eve­lynyu@chi­nadai­lyhk.com

Mak­ing its first investment in the ASEAN (As­so­ci­a­tion of South­east Asian Na­tions) mem­ber states in 2010, quasi-sovereign eq­uity fund China-ASEAN Investment Co­op­er­a­tion Fund (CAF) has taken the lead un­der the China-led Belt and Road (B&R) Ini­tia­tive, strik­ing a bal­ance be­tween profit-mak­ing and pro­mot­ing in­fra­struc­ture devel­op­ment in the 10-mem­ber re­gional group­ing.

The first tranche of CAF’s $1-bil­lion investment pool has been plowed into 10 ASEAN projects that are mainly en­gaged in in­fras­truc ture, en­ergy and nat­u­ral re­sources.

“We’ ve been in­vest­ing in the Philip­pines’ largest ship­ping and lo­gis­tics com­pany, the largest port in Thai­land and the largest telecom­mu­ni­ca­tion in­fra­struc­ture providers in Cam­bo­dia and Myan­mar. We’ve also in­vested in the fast grow­ing health­care sec­tor in Sin­ga­pore,” CAF Man­ag­ing Di­rec­tor Pa­trick Ip told the Hong Kong Sum­mit fo­rum on Tues­day.

He sa i d th e r e ar e gr e a t investment op­por­tu­ni­ties in the ASEAN coun­tries, given the asym­me­try be­tween its strong growth and the huge investment gap.

Cit­ing fig­ures from the Asian Devel­op­ment Bank, Ip said in­fra­struc­ture in Asia re­quires an an­nual spend­ing of about $1.7 tril­lion. He es­ti­mated that gov­ern­ments can con­trib­ute 20 per­cent of the funds re­quired, while the pri­vate sec­tor can pump in 10 per­cent. The investment gap in­fra­struc­ture is huge, he noted.

CAF, spon­sored by the Chi­nese main­land’s Ex­port-Im­port Bank of China, is cur­rently fundrais­ing for the sec­ond tranche, and the ex­er­cise is ex­pected to be com­pleted in the fourth quar­ter of this year, with a tar­get of rais­ing $1 bil­lion to $3 bil­lion.

The US dol­lar-de­nom­i­nated off­shore fund has seen six of its 10 investment projects suc­cess­fully ex­ited, record­ing a dou­bledigit re­turns rate.

Ac­cord­ing to Ip, an ini­tial pub­lic of­fer­ing is not their first choice un­der the ex­it­ing strat­egy, “Take the Philip­pines as an ex­am­ple, the daily trans­ac­tion vol­ume of their stock ex­change is around $200 mil­lion — just a frac­tion of that of the Hong Kong stock mar­ket,” he said, adding that it’s dif­fi­cult for in­vestee com­pa­nies to go pub­lic.

How­ever, Ip stressed that pur­su­ing high re­turns is not their ul­ti­mate goal, and their investment phi­los­o­phy is to help po­ten­tial com­pa­nies grow.

When CAF in­vested in the Philip­pines’ largest ship­ping and lo­gis­tics com­pany sev­eral years ago, the earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­za­tion (EBITDA) was low, but the fig­ure has im­proved sig­nif­i­cantly in re­cent years, Ip said. Apart from pro­vid­ing fi­nanc­ing, the fund also as­sisted the Philippine com­pany to im­prove and grow as part of its value-added post investment strat­egy.

Com­pared to other funds, Ip said CAF is more risk-averse. The ges­ture of in­vest­ing in in­vestee com­pa­nies serves as credit en­hance­ment which gives them more lever­age in fur­ther fund-rais­ing. The fund can also help them tap into the main­land mar­ket with the fund’s ex­ten­sive re­sources — perks that other funds might not have.

Af­ter a seven-year thrust into ASEAN, Ip said risks like geopo­lit­i­cal dis­putes could im­pose chal­lenges for Chi­nese main­land in­vestors. He’s glad to see that strate­gic projects like the B&R Ini­tia­tive can largely mit­i­gate ten­sion. Build­ing trust be­tween China and ASEAN coun­tries is im­por­tant for Chi­nese investment, he said.

Pa­trick Ip

Kriengsak Chare­on­wongsak (left) urges gov­ern­ments in the re­gion to strive for trade open­ness.

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