KARACHI, Aug 23: The International Finance Corporation (IFC) — a private sector arm of the World Bank — on Wednesday announced its commitment of $20 million to the $70 million worth of first Private Equity Fund in Pakistan.
Michael G. Essex, IFC director for the Middle East and North Africa, said at a press conference on Wednesday that the $70 million represented the initial closing of the fund which it partnered with the local JS Group. The first close of the fund — JS Private Equity Fund-1 — had been completed and signing ceremony performed the other evening. The fund lists other leading international investors such as SAMBA Financial Group, DCD Group and Global Investment House.
Mr Michael said the IFC had invested $2.1 billion in Pakistan since late 1950s. He estimated that IFC’s investment in the next 12 months could range between $200 and $250 million.
Mr Michael expressed great confidence in Pakistan saying there was no shortage of opportunities, but they needed to be explored. He referred to the highly skilled and low cost labour available in the country. Sectors such as financials, SMEs and infrastructure, he thought, could be of interest to the fund. He traced the history of relationship with the JS Group back to 1995 with the birth of ABAMCO, a management company of the group’s mutual funds, assisted by the corporation.
The IFC director observed that companies in Pakistan had access to short-term loans from banks, but private equity was missing. “Private equity is all about raising capital and investing in companies,” he said.
Worldwide, he said, there were hundreds of thousands of private equity funds, but this would be the first private equity fund in Pakistan which would provide a benchmark by its openness, transparency and fairness. Private equity, he believed, was a catalyst for growth and development of companies and therefore creating new jobs.
The IFC director at the press briefing was flanked by Ali J. Siddiqui, managing partner of JS Private Equity, and Steve Smith, director international operations of JS Group. Mr Ali explains that equity funds differ from other funds in the sense that unlike the presently available funds in the market which take away all the money in one tranche, equity funds raise money (called close of the funds) in tranches, when it needs to seize opportunities of making new investments.
The funds of $70 million from the first close would now be available for long-term investment in privately-owned growth companies in Pakistan. Eventual close would be $200 million or more. “The fund is focused on growth capital and buyout opportunities exclusively in the country,” Mr Ali said and added that the JS Group was already pursuing several investment opportunities for the fund. Opportunities, he said, existed in energy, automotive (vendor industries), transportation sectors and others.
He said fund investors were international institutions with a track record of success in emerging market private equity investing. “To have investors of their reputation and quality provides further validation of Pakistan’s increasing attractiveness to the international investment community,” Mr Ali asserted.
A question was put to Mr Michael regarding ‘political risks’ in investing in Pakistan. The IFC director dismissed it saying that risks existed everywhere. Risks, he said, were weighed against rewards and he looked at Pakistan as a land of opportunity.