Belt and Road fund created to help SME’s expand in countries involved

Oriental Patron and Everbright Securities team up with South-South Cooperation to set up offshore fund worth an initial US$200 million

PUBLISHED : Monday, 17 April, 2017, 5:22pm
UPDATED : Monday, 17 April, 2017, 10:33pm

Financing for small- and medium-sized businesses, taking part in China’s “One Belt, One Road” initiative is lagging behind demand, and the financial systems in many of the emerging markets in the countries involved are still not sophisticated enough to cope, according to industry insiders.

That’s according to the head of two companies, Oriental Patron and Everbright Securities, who have teamed up with the Finance Centre for South-South Cooperation based in Hong Kong, to set up an offshore investment fund, aimed squarely as helping SMEs build business in the Belt and Road markets.

“Any business that made money in China back in 1980s and ‘90s would thrive in Southeast Asia in the coming years,” Hong Kong-listed Oriental Patron’s chief executive Gary Zhang Gaobo told the South China Morning Post.

“However, compared with their ‘going global’ efforts into mature markets such as the United States, companies doing business in countries along the Belt and Road are facing difficulties getting funded,” he added.

Li Bingtao, CEO of state-backed Everbright Securities International, also based in Hong Kong, said the Belt and Road‘s fully equipped financing vehicles such as like the Silk Road Fund, the Export-Import Bank of China, and China Development Bank, mainly back large-scale investments, made by state-owned companies.

Its first phase of the funding initiative is worth US$200 million, with redemption of investments expected to be five years, with an option to extend by two years.

Companies applying for finding must demonstrate stable cash flow and a strong local operating team, which has already won market share in its target area or region.

Most of that first quota is already taken up, Li said, adding they are now in talks with two Cambodian based telecommunication companies providing 4G services, both operated by Chinese businessmen, to inject more funding.

“A lot’s going on in Cambodia. Chinese companies are laying cables there, building steel towers to support wires, and developing property projects,” Li said.

In general, what China lacked in the 1990s is in great need by Southeast Asian countries today. I have full confidence their economies will catch up with China in just ten years
Li Bingtao, CEO, state-backed Everbright Securities International

“In general, what China lacked in the 1990s is in great need by Southeast Asian countries today. I have full confidence their economies will catch up with China in just ten years,” he added.

Zhang said the Belt and Road countries “can take a lead from China on how it tackled development, which prioritised infrastructure construction.

“Investment returns will broadly rise when infrastructure is improved – that’s why China initiated the Belt and Road as a national strategy in 2013.”

Infrastructure has become the country’s most-favoured investment asset in recent years, as projects offer stable profit models, fall under regulatory protection, and are defensive against inflation.

Annual compound growth of equity returns from global infrastructure companies hit 9 per cent in the past eight years from August 2008 to June 2016, far exceeding the 5.7 per cent of average global equities return, according to figures quoted recently by Zhang Yiqing, head of equity investment of China Investment Corporation, China’s sovereign wealth fund.

More than US$490 billion worth of Belt and Road projects and deals were announced in 2016 across seven core infrastructure sectors, including utilities, transport, telecoms, social, construction, energy and environment, in the 66 countries that fall under the initiative, a review issued by PwC found in February.

The value of the average project was 47 per cent higher than in 2015. Meanwhile, the value of invested projects across the region has been growing at a compound annual growth rate of 33 per cent since 2013.