Tapping regional investors is a capital idea

Sep 12, 2019

Australian antibiotic developer ReccePharmaceuticals has turned to Asia to secure strategic investors to help with funding and, more pertinently, to potentially achieve local market penetration.

According to Recce’s executive director James Graham this turn to Asia is born out of two drivers. “There’s the patient population which will lead to consumer demand and Asia provides access to smart, patient capital," he says.

“It’s international capital and it’s there to support early-stage companies. There’s an appreciation of new technology and a very entrepreneurial mindset.”

Recce is one of an increasingnumber of Australian companies tapping into Asian capital markets at a timewhen Asian investors, especially high net worth individuals, are looking to putcapital into Australian listed vehicles.

The chief executiveofficer of Singapore-based Spark Plus, Omar Taheri, says family officesgenerally like something that is listed and a little innovative. Moreover,family offices which usually invest through bigger players such as MacquarieBank don’t often get to see Australian companies.

SparkPlus specialises in introducing companies to investors across the region andTaheri, who has been organising non-deal roadshows for Australian mid-marketssuch as Genesis Energy and Oceania Healthcare inHong Kong and Singapore, says it’s a win-win for Australian companies and Asianinvestors.

“Mostof the companies interested in tapping into this market are in the sub $250million cap range but we have a few larger caps. It’s a way forAustralian-listed companies to diversify their shareholder base into theregion."

Taherisays it’s also an excellent way for local companies to reach into Asian marketswith a savvy local partner with real skin in the game.

“Asian investors arevery strategic in their thinking and they see an investment in an Australiancompany as a way to bring a business into Asia, whereas Australian investorstend to just think about the domestic market,” Taheri says.

Also playing a part in this turn to Asian capital isthe fact Asia is becoming an increasingly sophisticated asset managementmarket.

Accordingto an October 2018 McKinsey report,the region is the world’s fastest-growing asset management market, representingsome 18 per cent of the global total of $US89 trillion in assets undermanagement.

Theprincipal and chief investment officer of Singapore-based First Degree GlobalAsset Management, Dr Stephen Fisher, says the big pools of money available toAustralian companies only became available over the last decade.

“Asia’s sovereign wealthfunds really only got big from 2000 onwards following the Asiancrisis," he says.

“Initiallythey invested in government bonds, branching into equities and then into smallcap and private markets after that. Some countries started earlier, such asSingapore, and others later, like Japan and Indonesia, but the big pools ofmoney really only became accessible to Australian companies over the lastdecade.”

Fishersays one reason we’re seeing this spike in interest is Asian investors tend tosave rather than spend so the pools of capital amass weight, which drives downthe rate of return in their own country.

“Thisinduces them to look for higher rates of return elsewhere. Hence they are aptto invest overseas,” he says.

Interestingly,he says two of the reasons Asian high net worth individuals look to makestrategic investments into Australian companies are “dinner party conversationand knowing your company”.

“Equityinvestors often want to make direct investments because they love the storybehind a company and believe they ‘know the company’, so rather than justinvesting in the index they’ll want to make direct investments so they caninfluence the managers and have nice dinner party anecdotes.”

Yetas frivolous as this may sound, Fisher says Australian companies especially inthe mid-cap space shouldn’t underestimate the “importance of the opportunitythey can tap into” when it comes to accessing Asian markets through strategicinvestors.

Recce’sGraham agrees regional investors hold the key to solid international expansion.

“It’sa natural move for us to invest time and focus offshore as that’s where ourfuture market lies," he says. "For example, 25 per cent of theworld’s antibiotic market is in Asia and only 3 per cent in Australia.

“Havingaccess to strategic investors in Hong Kong, for example, gives us access toChina as well. It’s deep-pocketed smart capital and right now the region isincreasingly taking an interest in Australia – it’s a perfect storm for us.”