United Overseas Bank Limited (UOB) and ORIX Corporation (ORIX) have announced the launch of a mezzanine fund to provide mid-sized companies in Southeast Asia access to expansion capital.
Through this joint-effort, UOB is the first Singapore bank to launch such a fund.
Terence Ong, Director of the fund and UOB's Group Head of Global Markets and Investment Management, said, "Southeast Asia's fast-growing companies are seeking capital to help them tap the opportunities arising from the two megatrends in the region - increased consumer spending and intraregional trade.
The fund will provide these companies with an alternative source of financing to help them to fulfill their expansion ambitions and business development plans.
The fund is managed by UOB's general partner, United Orient Capital GP Limited (UOC) and is a joint venture between UOB and ORIX. The fund will invest in mid-sized companies through the provision of loans or the purchase of bonds and preference shares. Such companies would have mature operations, strong cash flow and good management teams. Other considerations include such companies' market share, brand name and the industry's entry barriers.
The fund's investments will be used by these companies to finance corporate expansion and corporate restructuring activities such as recapitalisation, mergers and acquisitions as well as privatisation.
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UOB and ORIX are contributing an initial combined sum of US$100 million to the fund, with the target to raise another US$100 million from institutional investors based in Asia.
UOB and ORIX believe that mezzanine funds will offer Asian investors an alternative option to support the region's rapid growth and transformation.
Kazuo Kojima, Director and Corporate Executive Vice President of ORIX, said: "ORIX has catered to the diverse needs of its clients across Southeast Asia from the early 1970s. We have also maintained a strong partnership with UOB since establishing a leasing joint venture in 1972."
"Embracing rapid growth in Asian economies will continue to be the core component of ORIX's strategies going forward. With UOB's and ORIX's deep knowledge of Asia and connections across the region, we are well-placed to offer our investors a high-quality investment portfolio," added Kojima.
Mezzanine financing is typically a hybrid of debt and equity used to finance the expansion of existing companies and is subordinated generally to debt provided by senior lenders such as banks and venture capital companies.
As mezzanine funds typically receive interest income and scheduled principal repayments, they are able to provide investors with more stable and faster returns on capital compared with private equity investment funds.