Jupiter Capital Partners to launch $75 mln SL Country fund

By Duruthu Edirimuni Chandrasekera

Jupiter Capital Partners (JCP), a South Asian focussed private equity firm is to set up a US$ 75 million country fund for Sri Lanka, officials said.

“We’re going to call it Jupiter Sri Lanka Investment Fund,” Indika Hettiarachchi, Managing Director JCP told the Business Times. This unit aims to fund Small and Medium sized firms (SMEs).

Currently many SMEs and high growth companies are faced with funding constraints. Although there are various loan schemes targeting SMEs, such loan schemes do not help long-term growth of such firms, or help increase equity value of such firms thus hindering the growth of entrepreneurship in the country, according to Mr. Hettiarachchi. He added that the private equity (PE) ownership model allows a professional team of fund managers to take large stakes in private companies, to ensure they are run in the best interests of the underlying investors.

“Our strategies are designed to benefit from high growth companies – in both private and public markets.”

When evaluating an investment, PE investors expect returns to be driven by many “internal factors”, he said, adding that growth in business volume, improvement in value-addition of products and/or services, improvement of margins (due to increased scale, operational efficiencies, new technology), improvement in value due to better risk management, governance and management and the entry price are some of them.

PE investors are required to deliver very high returns to investors in PE funds hence it is essential to earn high return on each investment – at least 25 per cent, according to Mr. Hettiarachchi.

At a recent seminar on PE, he said that firms can benefit from private equity through value-addition. “Strategic management support, improve governance, internal controls/systems, risk management, etc and new business development can be achieved.” PE is a catalyst to increase a company’s equity value and marketability, he said adding that PE investors are committed to ensure long term success of the business (even after they exit). “Oftenexits are planned in a way beneficial for all stakeholders (company, promoters, employees, business partners).”

Listing some points to note about PE, he suggested that one should seek PE funds only if there is a solid expansion/growth plan. “Usually PE investors do not invest in start-ups and green-field projects and PE funding takes time (difficult to meet urgent funding requirements),” he said, cautioning not to think PE as a “cheap” source of funding with “fixed cost/rate”. He also advised to be comfortable about dilution of ownership, corporatization, delegation of responsibilities to professional management. “Be comfortable about sharing information honestly and openly. Obtaining the service of an adviser (an advisory firm) could help, but it’s not essential.”

Success of PE investors are not only judged by how much financial return they made on investments, but also by how well their investments perform in the long term as good corporate citizens, even after PE investors exit.

JCP specialises in dedicated South Asia country funds, and its fund strategies are custom tailored to suit each country in which they operate. “Our strategies are designed to benefit from high growth companies-in both private and public markets. Investing in high growth SMEs is also an important part of our strategy,” the JCP Managing Director said .

www.sundaytimes.lk

Finance Act raises constitutional issues, top lawyer says

By Bandula Sirimanna

Has the judicial process been undermined by extreme powers to Central Bank ?

Wide ranging powers to the Monetary Board (MB) in the Finance Business Act of 2011 governing finance companies are raising serious constitutional issues, a top company lawyer said on Friday.

K. Kanag-Isvaran, PC, said provisions in the Act giving powers to ‘directors’ (meaning the MB of the Central Bank) to freeze passports or seize property infringes on the judicial process raises concerns whether this is the due process and infringes on the rule of law.

Interested panellists listen to a member of the audience. Pic by Managala Weerasekera

“Under the Companies Act, that process is vested in the judiciary,” he said. Furthermore Mr. Kanag-Isvaran pointed out another issue that is inconsistent with the constitution, in his view, was the powers to the Minister of Finance under the Act to decide the priority of money claims (in winding up). Under the Companies Act, a court-appointed adjudicator has to ensure the proceeds are equally distributed. “Isn’t there a constitutional issue here? Isn’t there an inconsistency in the law?” he asked.

He was speaking during a public interest seminar organized by public interest activist Nihal Sri Ameresekere’s consultancy firm, Consultants21 on “Repetitive Debacles of Finance Companies” at the Kingsbury Hotel in Colombo. Former Supreme Court judge Priyantha Perera, banker and former public servant Ranjit Fernando and Mr. Ameresekere were the other speakers.

The panel raised issues ranging from the plight of the depositors; the ineffectiveness of the Central Bank (CB); the need to severely punish and jail corrupt directors of finance companies, for respected people to be appointed as directors and cleared under ‘fit and proper’ rules; to wide ranging laws available under the 2011 Act to halt the debacle of finance companies.

Mr. Fernando criticized the new rules of consolidation of the financial sector, reducing the number of finance companies by half, asking “why are good companies being asked to merge?”

He said while trying to protect four or five failed companies, in most cases where the directors have misused funds or mismanaged depositors funds, the good finance companies are also being penalized. He said it was unreasonable to ask companies to increase their capital to Rs. 8 billion in two years, citing how some very good and well-run companies in Chilaw and Kandy would have to close under such, unrealistic capital targets. “Capital requirements should be based on the risk of each company … not across the board,” he argued.

Justice Priyantha Perera, who chaired a presidential commission of inquiry into failed finance companies in 2008, revealed that if the recommendations by this commission had been implemented the debacle of finance companies could have been avoided.

He said the commission had made recommendations to restructure or merge ailing finance companies. It had also proposed to introduce a deposit safety insurance scheme to safeguard the depositors in case of liquidity problems. The report which was handed over to the President (some years back) is yet to be published.

Calling it ‘draconian powers’, Mr. Kanag-Isvaran also said the powers of the MB under the Act could be abused and create a situation where people take the power unto themselves.

“The biggest issue the debacle of finance companies has raised is a creeping infringement of some fundamental rights of citizens,” he said. www.sundaytimes.lk

CEOs Positive Of Economy

Eighty two per cent of CEOs interviewed by a consultancy expects the economy to steadily grow or accelerate.

This was said by MTI CEO Hilmy Cader at a function in Colombo on Tuesday (January 28).

He said that the sample comprised 150 CEOs of whom 65% were from “CSE Top 100,” while the rest were from mid tier companies.

Cader who titled his presentation “MTI CEO Business Outlook Survey 2014” however said that 18% of those captured in the survey expected the economy to decline.

In regard to the performances of their own businesses, 58% expected high growth this year, 38% (moderate growth), while the rest expected business to decline over that of the previous year, 2013.

Pessimism had dropped to 18% from 27% of the previous, however in 2011 it was a low of 11%.

“New Sri Lanka is all about new opportunities,” said Cader.

What CEOs perceived as major challenges were economic governance (27%) and law and order (11%).

What they perceived as “major business challenges” in the new year were government regulations and policies (24%) and slow consumer demand (12%).

“Costs and human resources (HR)” didn’t figure among their major concerns.

These contrast to the concerns of HR managers which mainly revolved round the difficulty in finding talent.

Going forward, the challenges were the cost structures built during the euphoric period of 2010/11, which were the best years for corporate performances, said Cader.

He further said that in the first nine months of 2013, 60% of S&P SL 20 companies experienced a drop in their earnings, while only 35% suffered a drop in their revenues.

But the operation of a low interest rate regime will trigger demand and help SMEs, said Cader. He also said that 60% of the CEOs captured in the survey expected the global economy to recover this year.

The occasion was the feting of “CIMA Corporate Partners 2014.”

www.sundayleader.lk

James Packer Bets Big On Asia's Casino Sector

By Lucinda Schmidt

Like his late media mogul father, James Packer likes to bet big. The difference? While Packer senior punted millions at blackjack, poker and baccarat tables around the world, his son prefers to own the casino. Five of them, in fact, with another four in the pipeline.

Over the next few years Packer, 46, is making his biggest bet yet, gambling much of his fortune on Asia’s burgeoning casino sector. In Sri Lanka, he won government approval in December to build a five-star casino resort in Colombo. In the Philippines, his City of Dreams Manila will open later this year. And in the global gambling capital of Macau, his third casino is on track to open in mid-2015, and he’s now adding a fifth tower to the already massive casino resort, City of Dreams.

Packer’s also been busy in Australia. In his hometown of Sydney, final government approval came through in November for a controversial $1.8 billion casino resort on the harbor, targeting Asian high rollers and due to open in 2019. As the chairman and major shareholder of Crown Resorts, he’s overseen a seven-year, $1.3 billion makeover of Crown’s flagship casino, which spreads across two city blocks on the banks of Melbourne’s Yarra River. And in Perth, conveniently close to much of Asia, a $1.3 billion expansion is under way for Burswood casino, now renamed Crown Perth. “That’s a hell of a lot of money; they’re huge bets for me,” says Packer of the dollars he’s spending in Australia alone.

So far he’s on a winning streak. Crown’s market capitalization now tops $11 billion, up $3 billion in one year. Packer’s private company, Consolidated Press Holdings, owns 50.01% of Crown, so half of that cash splash? and the stock price gains? are on Packer’s personal ledger. Those gains boosted FORBES ASIA’s estimate of his wealth by 10%, to $6.6 billion, this year, making him once again Australia’s third-richest person.

Money in China
As Packer points out, what has the market excited is Crown’s 33.7% stake in Melco Crown Entertainment, a joint venture run by Lawrence Ho, the son of Macau casino tycoon Stanley Ho. It is Melco–which last year joined FORBES ASIA’s Fab 50 list of the top Asia-Pacific companies–that has taken Packer into Macau, Manila and Colombo. Japan, too, is on the agenda, if casinos are legalized before the 2020 Tokyo Olympic Games. Vietnam is another target.

Melco contributed more than a third of Crown’s net profit of $407 million for the year ended last June. After Crown released the annual results in August, analysts scrambled to upgrade their earnings forecasts on estimates that the Melco joint venture will contribute 40% to 50% of Crown’s profit for fiscal year 2015. “We put $750 million into Macau, and it’s now worth $8 billion,” says Packer during a telephone interview from Los Angeles. “I’ve now got more of my money in China than anywhere else, more probably than in Australia.”

It’s a remarkable turnaround from five years ago, after Packer had invested in Las Vegas, Pennsylvania and Canada. “I lost a bunch of money in America because of the financial crisis,” he says, adding that impairment charges totaled $1.4 billion. That included writedowns on investments in Fontainebleau Resorts, Station Casinos, Harrah’s, Gateway and Cannery Casino Resorts, as well as an ambitious but abandoned plan to build Crown Las Vegas.

Was he worried that the mistimed Las Vegas debacle would destroy his company? “I don’t want to answer that.” (Some estimate that he lost more than $3 billion in the financial crisis, and plenty were writing his business obituary.) He will, however, share the biggest lesson he learned from that dark period. “Don’t be too leveraged–our balance sheet is now much more conservative than it was in 2008″ after he reduced debt “significantly,” he says.

Major business flop
Las Vegas was Packer’s second major business flop after a disastrous foray into telecommunications in 2001. He and his good friend, Lachlan Murdoch, son of another Australian media tycoon, Rupert Murdoch, invested heavily in One.Tel, which collapsed. Although the Packer family’s $300 million-plus haircut on One.Tel was a fraction of the Las Vegas loss, it probably hurt Packer more, since his famously abrasive father, Kerry, was still around to see the debacle–and lash him for it. Shortly afterward his first marriage, to Australian swimsuit model Jodhi Meares, ended and a subdued Packer spent the next decade shunning the media spotlight.

He may not have been talking to the media, but behind the scenes Packer moved quickly to forge a new path after his father died in 2005 at age 68. His grandfather, Sir Frank Packer, had taken a few media assets inherited from his father, Robert, and built the family fortune on Australian magazines, newspapers and the Nine television network. Kerry Packer then expanded the family’s media interests into a $5 billion empire, almost entirely Australia-based. James Packer harbored global ambitions–and not for magazine or TV assets.

In October 2006, just ten months after his father’s death, Packer announced the sale of half of PBL Media (which housed his major media interests) to private equity firm CVC for $3.3 billion–a move later seen as almost perfectly picking the top of the market. He sold a further 25% to CVC in 2007 for $430 million. In 2012 he sold his last major media stake, in pay TV company Foxtel and Fox Sports, to News Corp. and used some of the $1 billion in proceeds to top up his stake in Crown. Packer, who describes casinos as his “true passion in business,” could see that Crown’s Macau punt was about to pay off big time. “One of the things that is attractive about Crown is that it is a globally scalable model,” he says. “And the Crown brand is a very strong regional brand already.”

Now his bold Asian casino play and swelling fortune (up by more than $2 billion over the past two years) has predictably prompted comments about him emerging from his father’s shadow to become a billionaire in his own right. “I think life’s more complex than that,” says Packer. “My father and I finished on good terms, and I’m very happy about that.”

Does he wish his father were still around to see the Asian casino success? “But then he would have also seen me in 2008,” Packer counters, presumably grateful not to have had to face a Kerry Packer meltdown over Las Vegas. He’s also mindful of his father’s urging to try to be realistic about business: “You’re never as good on your best day as everyone thinks, and you’re never as bad on your worst day as everyone thinks.”

Hit the jackpot
Still, Packer concedes that with Macau he has hit the jackpot. “The business in Macau is going amazingly; I’ve been very lucky that it has been more successful than I would have thought possible.” For that, he says, the Melco Crown cochairman (with Packer) and chief executive, Lawrence Ho, deserves much of the credit.

The pair joined forces in 2004 and faced a baptism of fire when their first project, the upmarket but poorly situated Crown Macau (now renamed Altira) in Taipa got off to a slow start in 2007. Then their second Macau venture, the $3 billion City of Dreams, opened in 2009 just as the financial crisis was biting. Unlike the Las Vegas gamble, however, Macau came good, with City of Dreams focusing on the premium mass market. Melco Crown also holds a 60% stake in a third Macau casino project, the $2 billion Studio City on the Cotai strip, due to open in mid-2015 with a movies theme –and with obvious potential tie-ins to Packer’s new venture, RatPac Entertainment.

Macau, a special administrative area of China, used to be called Asia’s Las Vegas–until its gambling revenue outstripped the U.S. gambling capital’s seven years ago. It rose 19% to $45.2 billion last year, according to Macau Gaming Authority. That’s seven times Las Vegas’. Melco Crown, one of six companies with a Macau casino license, has roughly 14% of the market.

Lawrence Ho says Packer has given him “100% trust and faith,” even during the tough times after the global financial crisis. He notes that both he and Packer have fathers who were “legendary businessmen,” perhaps one reason they get along so well. Concerns about China’s slowing growth rate–and a potential tightening of visa restrictions on the number of visits, length of stay and amount of cash mainland Chinese can bring to Macau–don’t faze him. “We uphold our optimistic view on China’s economy, as well as Macau’s,” he says. “The increasingly affluent PRC population has led to a greater demand for quality entertainment.”

Packer, too, is optimistic. “I don’t pretend to be an economist. But China’s growth rate is still the envy of most of the world. Half a billion people have moved from poverty to the middle class.”

Packer is used to placing big bets–and sometimes getting stuck with a losing hand. But this is by far his biggest roll of the dice, with four new casinos scheduled to open over the next six years at a combined cost of more than $5 billion–plus another couple of billion put into City of Dreams Macau’s new tower and Crown Perth’s upgrade. But he says he’s not nervous. “I’ve had my ups and downs, but our plate’s really full now. The rise of China within the Asian century–these are exciting times.”

This story appears in the February 10, 2014 issue of Forbes Asia
(Courtesy: Forbes Asia)