IFC-backed Nepalese PE Business Oxygen to deploy 80% of its $14m fund this year

Chalida Ekvitthayavechnukul (https://www.dealstreetasia.com/author/chalida/)

Business Oxygen (https://www.dealstreetasia.com/?s=Business+Oxygen) (BO2), the first private equity firm in Nepal, plans to make up to 14 investments in total and deploy about 80 per cent of its $14-million fund by the year end, chairman and CEO Siddhant Raj Pandey told DEALSTREETASIA.

IFC, a member of the World Bank Group, appointed White Lotus Centre Pvt. Ltd. as fund manager for Business Oxygen, its SME ventures fund in Nepal, in 2015.

BO2 is an 80:20 joint venture between International Finance Corporation (IFC) and local business consultancy firm White Lotus Centre.

BO2 fund focuses on investing in Nepal’s high-growth, small-and medium-sized enterprises across all sectors.

Pandey, a banking industry veteran and former CEO of Ace Development Bank, said that only 39 per cent of Nepal’s SMEs have access to finance, leaving a gap for funds like BO2 to bridge.

“The deal sourcing in Nepal has been incredible. A lot of companies are out there. There is a lot of demand especially now when the banks have liquidity crisis and companies are unable to grow because of lack of capital,” he said.

BO2 usually invests between $100,000 and $500,000 per company and takes up to 49 per cent equity with an expected IRR of a minimum 20 per cent.

It has already made seven investments over the past two and a half years and plans to seal six to seven more deals within this year, he cited.

BO2 has invested in local restaurant chain Dalle Restaurant, farmer market Le Sherpa, natural pet food producer Godawari International, solar energy solution provider Saral Urja Nepal, and eco-tourism resort chain Himalayan Chain Resort.

“Apart from the capital infusion, we also give importance to impact investment from the gender equality side. Employment has gone up four times in the companies that we have invested in, they [investees] pay 100 per cent more tax since our entry, or even the climate smart adaptation. All these are what the companies have to adhere to,” he said.

The CEO said, the fund will probably see two to three exits next year. “By then, we will be in position to pitch for a new fundraising,” he added.

BO2 secured $7 million from IFC in 2015 and an additional $7.3 million from IFC through the United Kingdom’s Department for International Development Fund and the Climate Investment Fund’s Pilot Program for Climate Resilience in 2017.

Source : Deal Street Asia

Business Oxygen: Breathing New Life into SMEs

Nepal’s first private equity fund is empowering SMEs in a bid to foster development and augment the country’s economy.

As Nepal goes through a transformational change in business patterns, private equity is becoming a valid market solution for companies with excellent growth potential. The need for risk capital remains high in this situation. Business Oxygen Private Limited (BO2), a part of International Finance Corporation’s Global SME Ventures initiative, which supports the creation of risk capital funds in fragile, frontier, and post-conflict markets, is Nepal’s first private equity (PE) fund. It is also the first climate-related PE fund in the country. BO2 is a White Lotus Centre (WLC) venture that manages small and medium-sized enterprises (SMEs) and has been in operation for three years . BO2 is enabling Nepali companies with the vision of creating a social impact to grow further in the market.

Scaling up Nepali SMEs
BO2 helps entrepreneurs running SMEs to scale their operations by injecting equity and providing technical assistance. The requirement for the companies before collaborating with BO2 is that they need to have enterprise value and a good track record.The company provides four  to seven years of funding and a ‘harvest period’ of six months. Investments range between Rs 10 million to Rs 50 million, require no collateral and the companies don’t need to pay any interest.

BO2 combines risk capital financing with advisory support to help investee SMEs develop fundamental financial systems, quality-assurance standards, and corporate governance frameworks. BO2, which was registered in 2012 and started operations in 2015 , has International Finance Corporation (IFC), UK Aid’s Department for International Development (DFID) and the Strategic Climate Fund’s PPCR along with a Nepali company, WLC Ventures as its investors.

Creating Impact 
Nepal is among the countries most vulnerable and least resilient to the impact of climate change because of which being resource efficient is essential. BO2 considers helping companies become more resource efficient as its prime priority. The company does this in two ways – first by promoting low carbon growth by investing in solar energy, and secondly, by helping businesses it invests in, regardless of the sector, to become climate smart. BO2’s partner companies like Himalaya Chain Resort, Saral Urja, and Shanti Engineering have been promoting the use of a solar panel for electricity, harvesting rainwater, and recycling dry and wet wastages.

Even three years after the Gorkha earthquake, remote communities in Nepal still face challenges like lack of access to water and electricity. In Nepal, 22 percent of people don’t have access to electricity, and at least 20 percent don’t have access to clean water. Saral Urja, an investee company, has been installing solar panels that provide 30-kilowattsof electricity in Raksirang VDC, home to the Chepang, Dalit and Tamang communities of Nepal. These solar photovoltaic panels provide power to the solar-generated pumps to distribute 150,000 litres of water every day that not only irrigate the fields but also provide drinking water to each household through a network of pipes.The company claims that this measure has changed the face of this small town in less than a year as since its installation, every household has its own water tap and irrigation is now possible for 60 ropanis of land, on which villagers farm red chillies commercially.

Companies that have received investment from BO2 have reached the lives of 60,000 people and have employed over 2,800 people, which is an increase of 131 percent since BO2 started making investments. With an indirect employment contribution of 6,500 down the supply chain, it has seen a rise in female employment by 209 percent. In companies supported by BO2, women hold 23 percent of all direct jobs, a 250 percent increase from the date BO2 first invested. In an attempt to promote women’s economic empowerment and especially those from underprivileged backgrounds who are vulnerable, Bo2 has been employing women through its partner companies.

While 11,000 SMEs employ 1.75 million people and contribute 22 percent to Nepal’s GDP, its contribution towards poverty alleviation and the overall advancement of the private sector is also significant.

However, this is one of the neglected segments due to lack of funding available to the SMEs. Only 39 percent of SMEs in Nepal have access to finance. Alongside macro challenges like political instability and inadequate resources, they also suffer from a lack of proper managerial skills.

To create jobs and support local economies, BO2 has been working to promote the building of SMEs throughout Nepal. The company has been investing in SMEs for the past two years to become the alternative access to finance to narrow the gap slowly and to boost the country’s economy by creating jobs.

Investments Made
Impact investing is all about positively changing the livelihoods of communities. The focus of private equity impact funding is to establish fundamental financial systems in the companies. Quality assurance standards are developed along with the corporate governance framework. The idea revolves around creating entrepreneurs and companies along the lines of best international practices that make a difference in the local economy.

BO2 has made seven investments in SMEs from different sectors in the last two years. The companies that received investments are attempting to uplift the local economy be it by assisting hundreds of dairy farmers down the supply chain in the process of producing dog chew or by providing solar power systems as an electricity alternative.

BO2’s investment in the Himalayan Chain Resort (HCR) in the Khumbu Region is all about developing eco-tourism. They expect the ten lodges that are being built will improve overall hospitality standards and attract high-paying customers to generate better revenues in the region.

The accommodations will also facilitate better environmental and safety standards as well as improve medical and emergency preparedness in the area. Shanti Engineering, which fabricates metal products, has purchased two pieces of machinery and its relocation at Pokhara Industrial Park has made diesel consumption null from 1,641 litres in 2017 resulting in 5 percent wastage consumption. Due to the availability of 24-hour electricity, the overall efficiency of products has increased by 15 to 20 percent despite a 25 percent reduction in working hours per kg produced.

Godavari International Pvt Ltd, one of the companies BO2 has invested in, manufactures Himalayan Churpi (Pet food), a completely natural product and a signature export from Nepal. On average, a micro-dairy produces 300 kg of churpi per month, and around 20,000 stakeholders-livestock farmers, micro-dairy personnel, collectors, cooperatives, transporters are the direct beneficiaries of this sector. The churpi is sold to local retailers and exported to dog-chew brands in the US, Canada, Japan, Taiwan, Hong Kong, Malaysia and India.

BO2  is sector agnostic and invests in areas like agri-business, tourism, pre-fabricated housing, import substitution industries, education, e-education, eco-friendly manufacturing and technology.

Source : New Business Age