Development finance institutions such as the UK’s CDC Group have a duty to restore investor confidence in emerging markets during covid-19, the organisation’s head of Asia has said.
“I think the relevance of development financial institutions within the confines of the market we operate has gone up a few notches higher,” Srini Nagarajan told Private Equity International.
“When investors shy away from those markets, they’re not willing to invest further because of the very nature of the underlying risks, which becomes immeasurable. It’s incumbent on organisations like us to step up and play the role and restore confidence in those countries, which is what we are trying to do.”
CDC has remained active throughout the pandemic. Since March, it has committed $100 million to Africa-focused Helios Investors IV, $70 million to AfricInvest Fund IV and $10 million to India’s Chiratae Ventures Fund IV, according to its website. The £4.7 billion ($6.2 billion; €5.2 billion) institution also established permanent presences in Nepal and Egypt.
The organisation committed £1.7 billion to fresh investments last year. This included 12 funds – of which three were focused on South Asia – and 82 direct or co-investments, per the website. CDC has been particularly supportive of funds targeting financial institutions, which accounted for 53 percent of its commitments last year and 30 percent of its portfolio overall.
“We’re now supporting these funds to try and subscribe to those underlying financial institutions especially, which are trying to raise money,” Nagarajan said. “Being adequately capitalised is quite vital in these circumstances so that you feel confident.”
As a countercyclical investor, CDC aspires to deploy the same amount of capital this year, Nagarajan said.
“There are a lot of assets available at very, very good pricing today if you’re a consolidator with money,” he added. “If you try and pick your assets very carefully and buy them at decent value there’s a lot of value left there eventually when the markets turn.”
CDC typically invests via equity, debt and mezzanine. During the pandemic it has also provided unfunded support for businesses in the form of risk sharing, trade and supply chain finance. In July, it committed an additional $75 million to an existing trade finance facility with South Africa’s Absa Bank to provide systemic liquidity across African markets.
The institution invests from three buckets: one that preserves existing companies through liquidity support; one that provides systemic support to certain sectors through its fund managers or intermediaries; and one to pursue its existing pipeline of investments, Nagarajan said.
“It’s important that we try to complete those transactions with whom we’ve already committed,” he added.
“Even those where we have committed through the final IC, the world has changed, so we had to go back to our investment committee and talk about the post-covid impact of it and how does it all resonate today because we can’t be leading [them] up the blind path.”