The Wall Street Journal
June 29, 2009, 4:42 PM ET
Private equity investors wax poetic about Asia, but for the most part, by
Asia, they mean established economies like Japan, or up-and-comers like
China or India. Sri Lanka tends to be an area that gets a lot less focus,
but one firm, Singapore-based Calamander Capital Ltd., hopes to change that.
Calamander, headed by Chairman Roman Scott, is looking to raise
We caught up with Scott to ask him why.
How do you get comfortable with political risk in the country after a
three-decade
Outsiders, especially Westerners, don't understand that over the last six
years, Sri Lanka has grown faster than all ASEAN (Association of Southeast
Asian Nations) countries except Vietnam. Now imagine what you can achieve
without the war. The war thing has always been a perception issue. Unlike
the situations in Iraq, Afghanistan or Israel, what happened in Sri Lanka
over the last two years is that the Tamil Tiger rebels have been largely
removed. The political risk is not the resurgence of the Tigers movement,
because there are no Tigers to resurge. The risk instead is fighting the
economic war, and putting in place the right economic policy.
What kind of investors are you marketing the fund to?
We'd like to have an investor base as mixed as possible and hope to have no
more than one-third of investors coming from the U.S. and Europe. But for
the majority, our focus is on Asia, particularly Indian institutions and
high-net worth individuals, and to a lesser extent, ASEAN and the rest of
Asia. That's because they understand the Sri Lanka story. It's the
Cinderella story of Asia. Like all Cinderellas, Sri Lanka is the prettiest
girl although she works in the kitchen infested with rats - and Indians
understand that. It's closely tied to the Indian economy, almost like
another province of India.
Why does the fund plan to invest in commodities?
The demand for soft commodities in Sri Lanka is dependent on Asian demand.
For example, demand for rubber is tied to Asian growth and future global
growth, and is less tied to Wal-Mart. Demand for tea, for example, is more
fundamental. If you have a cup of tea in the morning, the demand is
resistant to recession and consumption doesn't change much. Demand for
building and construction products remains strong in Asia, especially as
much of the Asian governments' economic stimulus packages goes into
construction projects.
How do you plan to create value?
Virtually every company in Sri Lanka is not adequately capitalized and is
not efficient. For instance, some tea factories in the country are using
machinery that's 90 to 100 years old, and some are still powered by steam
engines. The country has the biggest concentration of low-hanging fruit on
the planet. It has been in a war for 25 years, which means no investment for
25 years. We are taking something out of the 19th century and into the 20th
century. Accordingly, we will use very limited leverage, no more than
one-third of the transaction value. And the leverage will be primarily for
working capital needs.
What is your exit strategy?
Exits will rely on trade sales to larger companies from the Asian region
that are looking for a foothold in the country or a supply of goods. For
example, the Indonesians and the Chinese are interested in rubber assets,
and the Singaporeans and the Malaysians are interested in building
materials.
