Value Partners teams with European bank to aid firms in interior provinces unable to secure loans or equity financing Local fund manager Value Partners is teaming up with a European development bank to offer financing to small and medium-sized enterprises in interior provinces. Value Partners will set up a joint venture with FMO, a development bank 51 per cent-owned by the Dutch government, to market 'mezzanine' financing - lying somewhere between senior debt and equity financing - to companies located in second-tier mainland cities. The two firms will inject between US$100 million and US$300 million into the venture, dubbed Development Partners. Both firms declined to disclose the equity structure of the new fund, citing regulatory restrictions. Franco Ngan, a managing director at Venture Partners, said the fund would target small to medium-sized private companies that had problems obtaining bank loans or equity financing. 'Many of these firms have difficulties with corporate finance and have found it hard to obtain bank loans because of various reasons, such as their locations,' Mr Ngan said. 'But on the other hand, they are wary of investment from most private equity firms for fear of share dilution. 'With the mezzanine financing we provide them, they will have more access to loan facilities while avoiding serious equity dilution.' On the other hand, forming an alliance with a development bank means that there will be stricter guidelines governing investment strategies, he added. Nanno Kleiterp, chief operating officer at FMO, said the joint venture would limit its investment targets to companies that adhered to environmental and corporate governance standards. 'We are very selective about the types of company we will focus on,' said Mr Kleiterp. 'We will make sure that they comply with our standards.' Strong past financial performance would remain an indispensable criterion in the fund's evaluation process, he said. 'Companies that we are looking for will be of considerable size. The typical investment size will be up to US$250 million,' said Mr Kleiterp. 'More importantly, we want to target companies that don't have access to international financing, namely those that are overlooked by the financial sectors. Hopefully we can help raise their standards, making them attractive to the international investment community.' Norman Ho, a senior fund manager at VP, said the joint venture would have plenty of firms to choose from and would mainly look to sectors such as education, pharmaceutical, financial institutions, agriculture and retailing.