Greentech Lead Asia: Targeting $150 million, the
Armstrong South East Asia Clean Energy Fund focuses on
small-scale power generation and resource efficiency projects and aims to
provide early-stage capital to infrastructure developers in Thailand,
Indonesia, Malaysia and other emerging markets.
Andrew Affleck, managing partner, Armstrong Asset
Management, talks about its growth strategies in an online interview:
Which are the main markets you are targeting for
investments in Asia?
Indonesia, Malaysia and Thailand are the target markets.
At this time, we are looking at solar projects in Malaysia and Thailand and
mini-hydro in Indonesia.
Is Greentech concept fading in emerging markets?
Our focus is on renewable energy infrastructure development
for which there is a substantial need and healthy interest. Generally,
Greentech (by which you mean backing businesses that take technology risk) has
not performed well historically in this region or in other emerging markets.
But according to research providers who track PE allocation, like Prequin, the
clean energy sector and emerging markets generally are receiving increased
interest and allocation from global investors.
What are the main criteria for investments?
The single most important factor is a professional
management team with relevant experience, an aligned vision and the resources
to implement a strategy that focuses on the development and aggregation of
small-scale renewable energy projects to international standards.
India is not part of your focus area. Are there any
specific reasons?
Many funds have been launched to focus on India or at
least include India due to the perceived scale of the investment opportunities,
and therefore the competition for deals will be greater. Another key reason:
our team’s operating experience is in SE Asia, not India.
You are looking at around $5 million in each company. Is
it enough for solar companies to grow faster? What are the other supports you
will be offering?
We can invest up to US$12 million in equity from our fund
in each deal.
We typically invest in solar projects that are up to 10
MW and therefore requiring a total capital cost of about US$25 million.
Currently, we are being shown projects with a design size of 6MW, therefore
with 70 percent debt financing, the equity per project required would be US$4.5
million.
Within our team we have experience in project management
and procurement, in addition to a broad network of service providers for this
sector in the region, all of which can help optimize project execution and
quality.
What are the market opportunities?
We currently see the key opportunities for SE Asia being
in small-scale solar and mini-hydro where because of the fiscal and policy
support mechanisms now in place, individual project returns are in the high
teens if executed properly.
What are your exit routes? There is no proven IPO route;
VC funds are also not very active in Asia’s Greentech sector?
Exit route is primarily through trade sale, whether it be
trade buyers like utilities looking to acquire operating assets rather than
developing them, or financial institutions looking for stable yield from
operating assets. Precedent transactions are already being done in the sector
in this region.
There is currently no proven IPO route. However we do
anticipate the emergence of listed infrastructure funds which will hold a
portfolio of operating assets.
Generally, there is still a lack of VC/PE/Infrastructure
funds focused on the Asian region, particularly clean energy in SE Asia, which
we believe is a great opportunity for our fund to invest in the best deals.