Note the newsvideo can be seen here: http://www.channelnewsasia.com/news/singapore/venture-debt-programme-to/2739484.html
Coverage by Channel News Asia, Calvin Hui
SINGAPORE: There may be scope to broaden the participation of stakeholders in SPRING Singapore's Venture Debt Programme (VDP) after the scheme, which is designed to help local small- and medium-sized enterprises (SMEs) gain access to financing, was rolled out earlier this year.
Speaking on the sidelines of a visit to one of the companies which has received funding under the scheme, Trade and Industry (Industry) Minister S Iswaran said on Thursday (Apr 28) that there needs to be an assessment of how the scheme is working.
He said: "We need to let the scheme run and see how the take-up rate is and what the feedback is from the financial institutions and other companies, stakeholders, and then I think we can see how to broaden the scope in terms of participation of stakeholders and any other adjustments and enhancements to the scheme. But I would say that if it is well-received, then obviously it’s an area that we want to encourage and broaden participation.”
Under the programme, SMEs can apply for venture debt loans of up to S$5 million each, for working capital, assets, projects or mergers and acquisitions for the purpose of business expansion. The programme is expected to provide close to S$500 million in venture debt loans over two years. SPRING Singapore will provide 50 per cent risk-sharing to financial institutions for such loans.
The VDP was previously announced at last year's Budget and rolled out by Singapore's three local banks - DBS Bank, OCBC Bank and United Overseas Bank - in January this year. So far, loans to four companies have already been approved.
Venture debt is a form of alternative financing for enterprises with high growth potential but which may not have established revenue streams or lack significant assets to use as collaterals, SPRING Singapore said.
The enterprise development agency explained that to compensate for the higher risks involved in backing such companies, venture debt providers may combine their loans with warrants or rights to purchase equity. Venture debt may involve deferred payment terms to minimise short-term impact on cash flow.
The minister made his comments while visiting Ascenz, which manages vessel operations in the marine industry and which has taken up a S$1 million loan from OCBC Bank under the scheme. The company intends to use the funds for the commercialisation of new products, research and development as well as overseas expansion.
Mr Chia Yoong Hui, CEO of Ascenz, said the funds will allow his company to grow at an accelerated pace. He added: “For our type of company, we are more research-based and traditionally, if you go for any funding from the financial institute, you need collaterals and assets to pledge against the loans or the funding. For us, most of our assets are our intellectual properties, are intangible and it is very challenging for us to access all those funding. VDP offers us an alternative on that.”
He also shared why he did not consider looking for funding from venture capitalists. “For private investors and VC investors, if we get any additional fund from them, it will dilute the founder's share and actually reduce our equity stake in the company.”
While this scheme is targeted at start-ups, OCBC said partnering the Government and being able to combine loans with warrants or rights to purchase equity also allow the bank to mitigate some of the risks involved.
Mr Tan Chor Sen, OCBC's head of international, global commercial banking, said that while the model of financing is new, "businesses have always been the same".
"Our experience and the broad base of customers we have allow us to understand the business better, so we are very confident and comfortable with the companies that come on board," he said, adding that with the Government taking half the risk, the risk returns "come in very nicely with our long-term plan".
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