Adamas Finance Asia

Suresh Withana on Adamas Finance Asia’s plans to become a dividend-paying investment business

This week saw investment firm Adamas Finance Asia(ADAM.LN) reveal total income of $1.25m in the first six months of 2019, a considerable increase on the $364,000 it generated throughout the whole of 2018. The result represents a strong indicator of progress for Harmony Capital, the business that set about refocusing ADAM towards income and growth when it took over management of its investment portfolio in 2017. Here, Harmony’s co-founder and managing partner Suresh Withana tells us what’s next for ADAM as it continues on the road towards ultimately becoming a dividend-paying company.

Funding gap

ADAM provides financing to businesses across a variety of sectors and geographies throughout Asia. Since 2017, the firm’s portfolio has been managed by Harmony Capital to provide a mixture of income and capital growth to shareholders.

Using its considerable on-the-ground presence – with offices in both Hong Kong and Singapore as well as London – ADAM’s particular area of focus is Asia’s booming small-to-medium-sized enterprises (SMEs)sector. Withana tells us that a funding gap of more than two trillion dollars exists among these companies as they struggle to source financing from traditional sources.

He adds that this deficit comes despite such businesses often contributing disproportionally to the national GDP in comparison to their larger peers. For example, according to the firm, 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.

Withana says that this dynamic presents the ideal combination of attractive lending terms and high growth exposure that only smaller businesses and Asia’s booming economy can provide.

‘Our focus is entirely on providing these companies with the financing opportunities that they can no longer receive from traditional banks or the capital markets because they are not blue-chip companies,’ he adds.‘The financing gap present in the global SME space is very well documented. For example, it is particularly prevalent in the UK, where smaller firms can no longer rely on traditional lenders. This issue is amplified in Asia, with the IFC estimating that the SME funding gap now comes in at $2.7trn. We see this as a massive potential opportunity and we are – as far as we know – the only listed investment company in the UK that focuses solely on Asian SMEs.’

You can view the companies most recent Adamas Presentation

Focused approach

ADAM is not a venture capital fund or ‘angel investor’ that pumps money into high cash burn blue sky startups. Instead, it provides a variety of structured investments to companies that have been around for several years and, in many cases, are already generating revenues or even profits.

Withana tells us that a typical ADAM investment is a business that has established itself in its market and now needs financing to support its next stage of growth.Although the company’s emphasis is on making money through interest income – debt instruments and convertible bonds feature prominently among its investments – Withana adds that growth is also essential.

‘Our target is to invest in companies in a way that provides a coupon and income that comes into the portfolio, creating value that way. We also expect them to increase in value by putting funds to work while being helped along by Asia’s strong economy – the region is now the world’s growth engine.’

When building their portfolio, Withana and his team take a highly involved approach, meeting potential holdings and carry out large amounts of due diligence before structuring the terms of a potential investment.Examples of holdings as it stands include restaurant group Fook Lam Moon, wind turbine blade manufacturer Meize Energy Industries, and property business Infinity Capital. It has also proposed a $5m investment in needle-free injector developer PharmaJet.

Giving back

This week saw ADAM report income of $1.25m in its results for the six months ended 30 June – paid through interest payments and fair value adjustments. Likewise, the firm reiterated measures aimed at improving the liquidity of its shares. These included a $500k share buyback programme, a widening of its available on retail investor platforms, and presentations at various investor events.

Withana says that generating an income – even if it was accompanied by a $160,000 net loss – marks a key milestone for the firm and also a good entry point for new investors. In particular, he said that it shows progress towards the firm’s ultimate goal of being able to return value to shareholders in the form of dividends.

‘We have stated for the last two years since taking over that we were going to reposition the portfolio towards income, and now our interims show that we have earned $1.25m through interest income. That is going to continue to build. We intend to begin paying sustainable and regular dividends,’ he says.

‘As it stands, we are trading at a 50pc discount to our NAV – no investment company I know trades at this discount, and we are working to change this by improving liquidity. With our portfolio of interesting, interest-paying SMEs continuing to grow, I am really excited for the next stages of ADAM’s growth and what we can deliver for investors.’

Suresh Withana from Harmony Capital, the investment manager of Adamas Finance Asia Limited (LON:ADAM)

The author was remunerated but does not hold shares in the company

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