A trillion-dollar financing gap for Small and Medium-Sized Enterprises (SMEs) in Asia alone offers a favourable investment opportunity for us. Access to capital by SMEs continues to be limited in different economies throughout Asia with traditional financing sources mostly unavailable for SMEs. To illustrate this, SMEs in Asia experience the highest rejection rate when applying for financing (56%) compared to multinational corporations (10%) despite an average contribution to GDP which can be as high as 58% in some Asian countries. With over 270 million SMEs across the region according to the International Finance Corporation, this provides a plethora of investment opportunities.
We are a diversified non-bank financial institution concentrating on income and capital gain across Asia. We believe that the Company benefits from the arbitrage present in the system whereby SMEs are finding it difficult to access financing from traditional bank channels. We support the entrepreneurs of these underserved SMEs and participate in their expansion. Through the above commitment, we assist in the creation of jobs, enhance corporate governance and serve as a financing bridge between the high growth markets in Asia to the rest of the world.
The Company is well positioned to gain access to these Asian investment opportunities caused by the current substantial, unmet financing requirement for SMEs, through the regional networks for deal origination to which both Jade Road and Harmony Capital have access.
In structuring our investments, a range of instruments may be deployed to provide flexibility and protection with transactions typically structured with an identified exit path.
In addition to providing growth opportunities for our investors we are also seeking to deliver them income. We source our income opportunities from a diverse array of geographies, instruments and asset classes across Asia including Greater China. In this way, we can offer our investors access to a balanced portfolio of the best income generating opportunities sourced by our investment manager.
The investment manager of the Company has the flexibility to invest across Asia, across sectors and across the capital structure of companies. Furthermore, given the long-term nature of the Company’s investment horizon, a more flexible Investing Policy should enable the Manager to navigate changes in the relative attractiveness of various financing asset classes in Asia through economic cycles and, potentially, geopolitical shifts which may increase the sovereign risk associated with specific countries relative to others within the region.
The investing policy of Jade Road is the following:
a. The Company has an indefinite life and is targeting both capital gains and income distributions for its Shareholders over time.
b. The Company will provide equity and credit funding to companies, principally in the Pan-Asia region or with a connection to Asia. It will seek to do this by:
- providing funding directly to companies via the provision of loans or other credit instruments which may be secured against assets of the borrower or its affiliates;
- providing funding to companies to accelerate their growth, expand the scale of their business and/or to consolidate their organizational structure in preparation for a public listing. Investments could be in the form of structured equity, debt and hybrid debt securities;
- providing growth, development and acquisition capital in the form of equity or quasi-equity to companies within growth industries;
- providing funding to transactions structured around significant corporate events such as recapitalisations, debt restructurings, buybacks of shares, asset spin-offs and corporate reorganisations;
- investing in publicly traded or ‘over the counter’ traded equity or credit securities, such as preferred stock, common stock, high yield bonds, senior loans, warrants, where the market is mispricing a company’s securities and thereby offering an attractive risk adjusted return due to one-off or short term factors; and
- investing (in addition to securing co-investment rights for the Company) as a limited partner or shareholder in third party managed vehicles which have a strategy to provide credit and/or equity funding to companies in a specific industry.
- The Company will be sector agnostic in its investment activities.
c. New investments will be managed actively, including through appropriate investor protections which will be negotiated on each transaction as appropriate and relevant.
d. The Company will consider using debt to finance transactions on a case by case basis and may assume debt on its own balance sheet when appropriate to enhance returns to Shareholders and/or to bridge the financing needs of its investment pipeline.
e. The Company may decide to dispose of or exit, partially or fully, existing investments in the Company’s portfolio where appropriate and based on the recommendations of the Investment Manager.