Profile: Navegar's Honorio Poblador IV

It became clear to Honorio Poblador IV and Javier Infante, over the course of the 2000s, that hardly anyone was willing or able to sink private capital into small- to mid-size Philippines companies.

Having previously attended the same high school and college, the two were neighbors in Singapore when Infante approached Poblador with a business proposition: He was looking for $2 million to support Ambergris Solutions, a business process outsourcing (BPO) company set up in 2001. Poblador, then working at Morgan Stanley, had to turn down the opportunity; his firm's minimum check size was $15 million.

Global BPO player Telus acquired a controlling interest in Ambergris in 2005, by which point Infante's attentions had by this point switched to another venture. Working with this Ambergris co-founders and several other business leaders, he launched Enderun Colleges, an undergraduate educational institution.

Private equity was becoming a hot sector in 1995-1997, particularly in Asia. I had read about it and was fascinated by it, but never thought it was the industry I would end up in; it was a very opportunistic move

Needing to raise $10 million to build a campus, Infante called on Poblador, who was by this point in the Philippines investing his own money and also investing on behalf of friends and family. Again, Poblador demurred, citing his limited resources. "We said, ‘It's so hard to raise money in the Philippines; if you need a significant amount of capital there is no go-to guy. We should be doing this,'" he recalls.

However, it would be another five years before this ambition was realized with the launch of Navegar Fund, a dedicated Philippines private equity fund supported by Swedish alternative asset manager Brummer & Partners.

Transactional to principal

Poblador started out in investment banking in Hong Kong in 1996. After completing a management economics degree at the Ateneo de Manila University, he completed an MBA at Columbia University in New York and was then dispatched back to Asia. His employer was Barclays de Zoete Wedd (BZW), the predecessor to Barclays Capital.

When the equities and corporate finance divisions were sold to Credit Suisse in 1997 Poblador followed. He covered technology, media and telecom (TMT) at both firms. During this period, he worked on a number of notable "nearly deals," such as the initial attempt to privatize Thailand's telecom sector following government-mandated liberalization.

"We had two mandates, one to advise the Ministry of Telecommunications on the sale of Communications Authority of Thailand [one of two state-owned enterprises, SOEs, in the sector], and the other to review concession fees amongst telecom operators," Poblador says. "We had been trying to unwind some of the mess brought by the bidding for concessions, where the winners ended up paying too much. Neither the privatization nor the attempt to rationalize concession fees happened."

By the time it did happen, in 2003, he was already established in PE. In 1999, Morgan Stanley Private Equity Asia wanted to build out a Southeast Asia team to complement its existing presence in Hong Kong. Poblador joined the Singapore office but within a year was back in Hong Kong as the two offices were merged.

"I had no specific plan to get into private equity early on in my investment banking career," he says. "Private equity was becoming a hot sector in 1995-1997, particularly in Asia. I had read about it and was fascinated by it, but never thought it was the industry I would end up in; it was a very opportunistic move."

Morgan Stanley was combining traditional private equity investing with forays into the technology space, operating primarily in South Korea, China and Japan. The firm's first dedicated Asia fund didn't come until 2005; before that it was the Morgan Stanley Global Emerging Markets Private Investment Fund, a 1997 vintage vehicle with a corpus of $330 million.

The deal with which Poblador was most closely involved was eAccess, Japan's first DSL provider. It was essentially a start-up deal: Morgan Stanley, Goldman and Orix Corp. provided around $40 million to support Sachio Semmoto, founder of mobile carrier DDI, on a new venture. After a few more rounds of funding, eAccess raise went public in 2003 and is now a unit of SoftBank Corporation.

Poblador credits Morgan Stanley with helping him transition from a transactional to a principal capital mindset. "The way we valued transactions was very different - it is almost mechanical when you are on the investment banking side, but you have to be more careful about projections and more diligent in figuring out what matters when you are on the principal side."

There and back again

It was in the early to mid-2000s, having returned to the Philippines, that he passed on the Enderun Colleges investment. Poblador describes this period in his life as somewhat experimental. Companies in the Philippines were too small to attract meaningful interest from foreign investors, and so he completed a number of small-ticket deals on an independent basis - filling a small portion of the country's private funding hole.

This ended in 2005 with a call from Andrew Rickards, Asia CEO at Rothschild, who was trying to set up an in-house PE arm. "He said, ‘I need you to help me, but you have to be on the inside. The only way you are going to do that is by returning to investment banking,'" Poblador recalls.

As the executive responsible for Rothschild's Philippines business, and financial sponsor coverage in Southeast Asia for a while, he advised on the privatization of the National Transmission Corporation and the acquisition of eTelecare by Providence Equity Partners and Ayala Corporation, among others. Getting the PE arm off the ground was a side project and progress was far slower than expected. Rickards departed in 2007 to set up Providence's Hong Kong office.

Throughout his time at Rothschild, Poblador continued his dialogue with Infante about starting a Philippines-focused private equity firm. "The only thing missing was someone to help us raise the money. We thought we could raise $20 million on our own, but that's not a private equity business - 2% of $20 million wouldn't have been enough to cover our operating costs," he says.

In 2010, the missing piece fell into place. Poblador and Infante were put in touch with Brummer. The Swedish group had raised $88 million for the first-ever Bangladesh-focused PE fund (a successor vehicle launched last year) and was looking for a new project in Asia.

Speaking at the AVCJ Philippines Forum in September, Anders Stendebakken, managing director at Brummer, offered a list of reasons why the country was so attractive: strong and reasonably predictable GDP growth; an economy not driven by the same forces as others in Asia; a stable currency; favorable demographics; and the potential to be a relatively early mover in the private equity space.

"What was remarkable to us when we were looking at it a few years ago was that even though the stock market here has about 50% foreign participation we had an opportunity to be one of the first movers in growth capital - investments of $10-20 million, mainly minority, sometimes control," he said. "That space was wide open."

Breakout phase

After traveling to Stockholm to make a presentation to senior members of the Brummer team, Poblador, Infante and their new partner started fundraising in 2012. Third-party commitments came from a string of development finance institutions, including the International Finance Corporation, Germany's FMO and DEG of the Netherlands, as well as from several European family offices. Navegar Fund has around $119 million in committed capital.

"When we raised the fund we knew there was an opportunity but we didn't know how to define that opportunity. We didn't know how many opportunities we would get to look at, and we didn't know what the bite sizes would be," says Poblador, who transitioned to an advisory role at Rothschild shortly after fundraising started. "We have since deployed 50% of the money and bite sizes have been $15-18 million - this is a sweet spot, because nobody in the Philippines provides that amount of money to private businesses."

Stendebakken said that in the past two-and-a-half years Navegar had considered 186 potential investments, signing 12 letters and completing three transactions. Those three deals also cover industry sweet spots, namely services, consumption and healthcare. Navegar has backed BPO provide TaskUS, local healthcare maintenance organization (HMO) Intellicare, and The Bistro Group, a premium casual dining operator with over 50 restaurants nationwide.

None of these transactions moves the needle in terms of overall private equity deal flow in the Philippines, and even at Navegar's end of the market companies have more capital-raising options than before, including IPOs and investments from strategic players. But on balance, Poblador is pleased by what he is seeing.

"There have been some large transactions over the last two years, and a lot of private equity guys come through the Philippines. Most of them come to see us to get our insights," he says. "So for sure there is a lot of interest."

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