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The Asian Development Bank has approved a US$25 million equity investment in the Thailand Small and Medium-size Enterprises Investment and Restructuring Fund (SIRF) which will be set up shortly.
The fund - which has a target size of US$100 million - will invest in small- and medium-sized enterprises (SMEs) with promising businesses which are in need of expansion capital. The fund is a part of the ADB's strategy to assist crisis-affected economies with investment in the private sector.
As a result of the financial crisis, many intrinsically sound companies in Thailand, especially small- and medium-sized firms, face severe financial difficulties, including a shortage of working capital and unsustainable debt burdens. Those companies have limited or no access to alternative sources of capital and generally cannot afford the services of international investment banks.
The SIRF is expected to help restore investors' confidence in Thailand. It will also aim to reduce high debt-to-equity ratios of SMEs to a lower and more prudent level, enabling the banking system to extend credit or provide new loans.
The SIRF will have a 7-year term with an option to extend for two years. Japan Bank for International Cooperation (JBIC) has been playing an active role in the development of the SIRF, and is expected to approve its equity investment of $25 million soon. The remaining balance of the SIRF will be raised from the institutional investors in the capital rich countries which includes State Street Global Advisors (SSgA), the investment arm of State Street Bank and Trust Company.
The SIRF will identify priority sectors and industries with strong growth prospects. It will seek a diversified portfolio which contributes to improving governance and recovery of the SME sector in Thailand.
In addition to the fund investment, the ADB will make an equity investment in the Thailand Fund Management Company (TFMC), which will manage the Fund. SSgA and ADB will be the shareholders of the TFMC.