French aid agency arm mulls more equity investments in Sri Lanka

Proparco, the private sector arm of Agence Française de Dévelopment (AFD), France’s development agency, is looking for investment opportunities in Sri Lankan companies as it expands investments in equities, an official said.

Proparco is focusing investments in sectors like renewable energy, energy efficiency and agri-business value chain, keeping the best environmental and social practices in mind, said Proparco Senior Investment Officer Yatin Kundra. The organisation wants to promote inclusive growth and invests in development finance and microfinance institutions that have potential to contribute to employment generation, he told a forum.

“The companies we invest in, we like them to optimise impact on gender equality and social equality,” Kundra said. Proparco offer loans and equity investments with the mix weighted towards the former now, with 88 percent being loans and 11 percent equity.

“In the future we want to expand equity investments to 20 percent,” Kundra told the forum held by the Sri Lanka – France Business Council of the Ceylon Chamber of Commerce.

“If you’re looking for growth capital, speak to me.” Proparco loans are usually from US $ 10 million to US $ 100 million. “But the ticket size can go down to even US $ 5 million if the project is right and can make an impact on the ground,” Kundra said. “In India we have made investments of US $ 2 million.” Most loans are for five to 20 years with five years being standard for agri-business and up to 20 years for infrastructure. “We offer dollar, euro and local currency loans with swap options,” Kundra said.

“Long-term swaps are not easily available in Sri Lanka. The swaps tend to be a bit expensive but your exchange rate risk is taken care of.”

Equity investments by Proparco are usually US $ 3-10 million and can be straight investments, convertible preference shares or debentures. “We are very passive investors,” Kundra said. “We don’t take over a 20 percent stake in a company. We rather have one director on the board.”

Proparco also looks for a clear exit strategy when it invests either through an initial public offer or buy back by promoters with a time horizon for exit of five to eight years.

“We’re very patient investors and not in a hurry to exit,” Kundra said.

“We want to grow with the company and we want to help promoters to grow their business.”