Singapore, US chemicals PE firms setting up fund to scale up and boost deals

The Business Times by ANDREA SOH


CHEMICALS-focused private equity firm Hafnium Hafaway, newly set up in Singapore late last year, has tied up with US private equity player Lion Chemical Partners to jointly set up a fund and explore other business development opportunities.

These could include working with American chemical companies held by Lion Chemical Partners to establish or further their presence in Asia, said Hafnium executive director Francis Tan.

"We don't have a set-up there, and they don't have a set-up outside of the US. That's where the partnership makes sense both in terms of deal flow and scale expertise," he told The Business Times in an interview.

Hafnium Hafaway, established in October last year, plans to acquire stakes in small but promising European chemicals companies with revenues less than US$200 million, and earnings before interest, taxes, depreciation and amortisation (Ebitda) of US$2.5-25 million.

The advisory investment firm hopes to persuade these companies - which might not have the bandwidth or appetite to pursue Asian expansion - to use Singapore as a launchpad to venture into the rest of Asia. In doing so, they can tap into the commercial expertise of Hafnium's six partners and advisers, many of whom have strong expertise in oil and gas multinationals - such as Shell - or relevant consulting experience.

Still, potential investors, while recognising the individual expertise in Hafnium's partners, have had inhibitions in investing through Hafnium thus far due to its lack of investment record, said Mr Tan.

The proposed Lion-Hafnium speciality chemicals fund will therefore help to ease some of these concerns, he added. Lion Chemical Partners, and their holdings, will in turn gain from the experience of Hafnium's partners in establishing and running successful chemical businesses in Asia.

The fund could be set up in Singapore or other jurisdictions such as Dubai or Cayman Islands, depending on the preference of its investors and the ease and efficiency of establishing a fund. Hafnium is nevertheless currently in the process of applying for a licence in Singapore, said Mr Tan.

Even before the fund reaches a close - which could take a year or two - Hafnium could still invest in companies using the partners' equity of US$10 million. These investments would then be brought into the fund as seed assets, he said.

Based on the megatrends of population growth in Asia, the structural shift in the energy sector, climate change and digital transformation, Hafnium has narrowed its investment focus to four themes:

  • Energy-efficient solutions such as composites which go into lightweight materials;
  • Industrial lubricants or robotic grease;
  • Advanced materials such as high performance coatings or 3D printing material; and
  • Renewables and recyclables such as anti-dusting coating for solar panels.

The company is already evaluating two to three companies every week as it also applies for a licence in Singapore, said Mr Tan.

At the same time, it has also partnered UK-based graphene manufacturing company Graphitene in a move that would enhance its value proposition to future portfolio companies. Both have entered into a 50:50 joint venture which aims to accelerate the commercialisation of graphene applications in the petrochemicals sector. Hafnium will be Graphitene's exclusive partner globally within this sector.

Highly conductive of heat and electricity and stronger than steel, graphene - which has ultra-strong, flexible and lightweight qualities - was in vogue a decade ago on the hopes that it could change many fields, but manufacturing it on a large scale turned out to be difficult and expensive.

Graphitene is able to produce the material at scale, and is now in the process of commercialising the material's applications, said Mr Tan.

In the petrochemical sector, the material could be used to improve polymers, lubricants, additives and coatings, among other things.

"Chemicals is an area which could benefit from graphene. The challenge is to jointly develop research with companies which has these products," said Mr Tan.

"Because we have knowledge of these sectors and we have access to networks within the sector, we could help Graphitene in terms of securing the right applications and working with the right partners to commercialise graphene as a chemical product."

The group is also in talks with a nano-particles coating company in Germany to form similar collaborations.

For now, Hafnium is seeking an anchor investor who would invest at least US$10 million. Such an investor could be oil and gas corporates who are seeking a foothold in the speciality chemicals space, or family offices with background in adjacent sectors.

The group also expects to make an investment by the end of 2018. "We will be very disappointed if we have not secured a deal by the end of the year," said Mr Tan.