Cube Capital enters Myanmar

Cube Capital is believed to be the first western asset manager to launch a fund investing in Myanmar since the easing of economic sanctions on the south-east Asian state.

The London-based alternatives group, with $1.3bn under management, last week launched the Cube Asia Frontier Fund, which will invest in real estate in Myanmar, Mongolia and Vietnam.

Myanmar was off limits to western investors until April this year, due to sanctions imposed in the 1990s. Those sanctions are now being eased or suspended following progress by Myanmar’s military leaders towards democracy, clearing the way for foreign investors to seek exposure to economic growth estimated by the Asian Development Bank to reach 6 per cent this year.

Tom Holland, managing partner of Cube Capital Asia, said Cube would be working with local companies in each of the countries it is targeting.

In Myanmar, Cube is partnering with SPA (Serge Pun and Associates), an arm of Singapore-listed Yoma Strategic Holdings, which has until recently been one of the few ways for western investors to access Myanmar. Cube already has experience of real estate private equity deals in Mongolia, Vietnam and Myanmar. In Myanmar it is in the process of exiting a residential development aimed at Yangon’s upper middle class. The deal was struck on a private basis for a family office.

Its initial pipeline of projects is focused on “cleaning up the past”, said Mr Holland, with Cube seeking approval to finance developments that had been mothballed after running out of money.

Cube aims to raise $150m for the closed-ended fund, which is targeting an investment period of about two years and a “harvest” period of five years. The target minimum investment is $5m. The Cayman Islands-based fund has a 2 per cent management fee and a 20 per cent performance fee with an 8 per cent hurdle rate.

This kind of distressed project financing is typical of the kind of deal Cube invests in, but it also involves itself in “greenfield” developments such as CentrePoint in Vietnam, for which it put up 90 per cent of the equity.

Despite the excitement about Myanmar, Mr Holland said Cube’s experience of operating in frontier markets had been behind the decision to avoid setting up a single country fund. The multi-country approach means the fund will be less vulnerable to sudden policy reversals or other events in any of the target markets.

The fund will invest no more than 50 per cent in any one country and no more than 25 per cent in any one real estate deal. Cube uses offshore structures where possible, or otherwise foreign investment channels where foreign exchange has been approved.

Under British administration Myanmar, or Burma, was one of the wealthiest nations in south-east Asia and the world’s largest exporter of rice. It is now one of the poorest nations in the region despite being rich in oil, gas, timber and other resources.