AIM is littered with husks of companies that tried and failed to make it big in China.
Non-existent corporate governance, disappearing executives, blue sky and nothing else have been all too prevalent.
While it’s fair to say things have improved, the scars remain and so it’s perhaps understandable the new manager of AIM-listed investment company Adamas Finance Asia Limited (LON:ADAM) wants to broaden its reach.
The original remit was predominantly to offer private credit (loans in essence) to small and medium-sized companies in China not able to get funds from traditional sources such as the banks.
Harmony Capital, which took over management of the US$78mln portfolio in May last year says while the private credit market in China is still a massive sector, things have changed.
Pan-Asia the opportunity
The opportunity across the whole continent of Asia is now much larger and, so, Pan-Asia is the new focus.
Obviously, that includes China, says Suresh Withana, Harmony Capital’s managing partner, but now not exclusively so.
Australia, Hong Kong, Singapore, Indonesia - companies based in any of these places are fair game, he says.
To free up capital, Harmony Capital has started to work through its existing portfolio, raising liquidity where possible.
Withana can see 40-50% of the US$78mln worth of assets at the last half-year end being changed once the process is substantially complete.
Money is due from a number of redeemed investments or in the case of dolomite/magnesium miner Hong Kong Mining, Adamas has taken a 79.3% stake following the failure of the business to complete a listing.
Adamas will invest more broadly and Withana has an open mind as to the types of companies Adamas now targets.
“We are sector agnostic” he told Proactive, though being Asia-focused will naturally pull it towards consumption plays, healthcare, fintech and energy/resources.
Typically for every US$100mln it has to invest, Adamas will look for 5-10 opportunities, he adds, that way its stakes are not too small nor do they dominate the portfolio.
Harmony has a network of contacts across Asia from which to source investment ideas, but Withana says for the management of a particular target company to have a large stake in their own business is probably one of its only hard and fast rules.
Adamas and Harmony have some owners in common, so it is not completely independent. However, Harmony Capital is run as its own independent unit focussed entirely on managing the listed vehicle.
Withana, though, points to a track record at Harmony that includes a fund not dissimilar to Adamas Finance Asia which deployed US$275mln at its peak before its dissolution.
Adamas Finance Asia market capitalisation is currently about US$53mln, which is a hefty discount to its stated asset value.
Withana recognises the legacy issues of being an AIM-listed investor specialising in China may be a reason for this, but says the fact that Adamas Finance Asia is a permanent capital vehicle means it can take a pan-Asian long-term view when it comes to allocating its cash.
The hubris that came with an AIM listing also belongs to a different generation, he says.
“We need to put our money where our mouth is, demonstrate what we are doing works and people will start to take us seriously.”
The first test will be the upcoming asset value update, which will show how much capital Withana has to play with, but he is upbeat.
“The demographics and predominantly aspirational Asian population mean the fundamentals have a long way to go.
“I’m a big believer in Asia.”