Latest US$56mil allocation for high tech to fill gaps
Three cloud companies get open ended project funding
ZUBIR Ansori Yahaya (pic) can look back on 2014 with some satisfaction. The chief executive officer of Malaysian Debt Ventures Bhd (MDV) saw 90 new companies successfully apply for the debt financing loan that MDV offers.
On top of that, he ended the year by announcing a new RM200-million (US$56.4-million) fund specifically for high-tech businesses such as nanotechnology and advanced materials, and even in transportation as well as oil and gas.
Acknowledging that the latter two look out of place, Zubir highlights that with ICT now very much seen as an enabler, MDV will fund the tech component of any logistics or oil and gas project.
A new tagline – ‘The Nation’s Leading Technology Financier’ – also serves to remind the market of MDV’s strong technology focus.
At RM200 million, it is one of the largest tech-related funds announced in 2014 in Malaysia and reflects the Government’s commitment to investing in technology and its confidence in MDV, which happens to be one of the agencies that regularly issues dividends to the Government.
But why pick an area such as high tech, where few Malaysian entrepreneurs are known to be involved in? To Zubir, the answer was easy enough: To fill the gaps.
“When we mapped out where the existing funding support in Malaysia was going, we realised there was a gap in this ‘pure technology’ area,” he says.
“Whereas for instance, in agriculture, manufacturing, and transportation, for small and medium enterprises (SMEs), there were various development financial institutes (DFIs) supporting them – but MDV found none in high tech,” he adds.
Not being classified as a DFI also meant that MDV was not under the more restrictive financial regulations of the banking sector where debt equity funding is constrained and there is a need to see financial performance over the past three years.
With MDV being classified under the venture capital/ private equity category, it can do more to close the project funding gap that exists in high tech, according to Zubir.
And keenly aware that Vision 2020 – the Government’s aspiration to make Malaysia a fully developed nation by the year 2020 – is looming on the horizon, he feels that the country cannot have any critical gaps.
“Hence the focus on high tech and hence the rebranding as a technology financier you go to when you have problems getting funding from financial institutions,” he says.
That proposition carries with it obvious inherent risks, with MDV making measured bets on early stage companies with no firm market uptake or three-year track record, but solely based on the strength of the company and the project undertaken.
This is where its disbursement strategy is very thorough and acts as “our only defence,” says Zubir, adding that “in some cases, we almost act as the accounts payable department for our customers.”
The purpose is to ensure that the projects are carried out on time and on plan. It is this rigour that has enabled MDV to experience a low 5.6% Non Performing Loan (NPL) ratio in 2013.
That is a ratio that has progressively come down over the years with more than 700 technology projects funded. MDV’s target for 2015 is to bring it below 5%.
With such an NPL ratio, it is tempting to think that MDV plays it cautious in terms of giving out loans. It has two main products in its bag: A fixed term loan and a revolving term loan which is more risky for MDV.
It is currently supporting three cloud-based companies through the revolving project term loan given in late 2012 and early 2013.
“These are open-ended project loans where the projects have not got sufficient market traction yet nor revenue, and we based our support to them on the projected cash-flow,” says Zubir.
More than that, MDV gives such projects a 12- to 18-month gestation period to allow them to monetise the project and get their infrastructure in place.
Green tech projects fall under this category as well.
While Zubir is confident that cloud computing will be a mainstay of business operations in the future, he acknowledges that the path ahead is still rocky for companies that hope to grab a piece of the economic pie in this space today.
He is confident that the corner will be turned eventually, especially with the help of MDV in tiding the companies over the initial rough patches.
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