Sri Lanka investment banker sees big appetite for PE funding

(EconomyNext) – A Sri Lankan investment bank which helped set up a 50 million US dollar private equity fund to invest in small businesses sees a big appetite for PE as the island maintains its post-war economic growth rate.

Rajendra Theagarajah, Chief Executive of NDB Group, which set up the Emerald Sri Lanka Fund with New York-based Zephyr Management together with foreign development banks, said PE funding would be a useful complement to banking in the evolving business environment.

The island’s economic growth has accelerated to around seven percent a year after a 30-year ethnic war ended in 2009 with government and private sector efforts now focused on encouraging entrepreneurs and small businesses which form the backbone of most economies.

"The appetite in the eco-system is far greater than 50 million dollars," Theagarajah said.

The Emerald Sri Lanka Fund is managed by NDB Zephyr Partners, the fund manager jointly owned by NDB Capital Holdings, the investment banking arm of the NDB group, and Zephyr Management LP, a global emerging markets investment firm.

The fund’s investors include experienced emerging markets investors like IFC, the private sector lending arm of the World Bank Group, DEG – Deutsche Investitions-und Entwicklungsgesellschaft mbH and FMO (the Netherlands Development Finance Company).

Zephyr will invest 700,000 dollars in the Emerald Fund, NDB 12 million dollars and IFC, DEG and FMO 10 million dollars each.

Theagarajah said the PE philosophy is an integral part of funding of small and medium enterprises which have different stages of growth.

"This (PE) gives a tremendous opportunity once a new entity is past the angel investing stage but before going to the capital markets," he said.

PE can help in capacity building like good governance as well as improving management and technology.





"For that this sort of PE funding plays a very important role because the partners not only give private money but give time and effort to build the capacity of the company. That’s an important ingredient," Theagarajah said.

"One needs all these elements – debt and private equity – in play for these systems to be vibrant. They are not exclusive. They go in tandem."

Vajira Kulatilaka, Chief Executive of NDB Capital said PE is different from banking, being very specialised and highly focussed.

"This type of activity is difficult to do in a banking environment."

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