When the US subprime crisis erupted in September 2008 and Lehman Brothers collapsed, we knew 2009 would be a tough year for business, especially the ICT and biotechnology sectors. And indeed it was.

Even the theme of Malaysia Debt Ventures Bhd’s business plan for 2009 — Managing Challenges, Consolidating Strengths — meant we had to brace ourselves for the worst and prepare the team and infrastructure for the next growth cycle. During the year, MDV saw a marked drop in the number of applications seeking funding for government-sponsored ICT projects. The government contracts that were secured were either small or for providing maintenance services for earlier contracts.

However, thanks to high-speed broadband (HSBB), the digitisation of RTM and implementation of the Total Hospital Integrated System (THIS) at several hospitals, Malaysian ICT companies were able to keep themselves afloat. The other sustainable sector in MDV’s loan portfolio was wireless communications, comprising contracts from mobile and WiMAX operators.

The problems faced by the ICT sector were compounded by competitive offerings by the banks. Initially, lower interest rates following the reduction in base lending rates were expected to lure ICT small and medium enterprises away from MDV. In reality, MDV’s interest or profit rates of between 6.5% and 7.5% became attractive as banks tightened their credit requirements despite repeated calls by the government to relax them. Only after the implementation of the government’s RM10 billion guarantee scheme are we seeing banks willing to lend, especially to SMEs.

Nevertheless, the increase in financing under MDV’s Small Contract Financing Programme for loans of less than RM2 million mitigated the impact of lower government contract financing, which saw an increase in the number of applications from ICT SMEs.

The sharp decline in ICT projects financed by MDV was also offset by an increase in lending to the biotechnology sector. In some ways, the decision to venture into biotechnology financing was timely and correct. In terms of our biotechnology portfolio, since the launch of MDV’s Biotechnology

Financing Programme in May 2008, we have approved 19 applications totalling more than RM250 million.

Given Malaysia’s capabilities and resources, the majority of our portfolio is within the industrial biotechnology sector. We have also provided project financing for a number of companies in the healthcare and wellness space. Having said that, MDV has also financed more cutting-edge technologies, such as plant genome sequencing and identification. However, unlike the ICT sector which is characterised by medium or long-term contracts with customers, biotechnology projects to be financed by MDV are expected to be open-ended. In open-ended project financing, the credit risks faced by MDV are usually much higher as the returns from the projects are uncertain.

The good news is, we have been seeing more loan or financing applications for government ICT contracts, which are primarily contributed by spending under the government’s stimulus package. Overall, with contributions from small contract financing and biotechnology project financing, MDV recorded an increase in its loan portfolio. To a certain extent, in conjunction with expansion by pioneer MSC-status companies regionally and overseas, MDV’s loan portfolio was also supplemented by financing to Malaysian companies that managed to secure international projects.

For 2010, MDV expects continued growth in the ICT sector, with increased investment in telecommunications infrastructure. The advent of HSBB will also see the introduction of another platform for digital content providers to expand their market reach, especially with the expected introduction of IPTV.

The government’s push for Malaysian industry to adopt a new economic model will also mean an increased emphasis on building an efficient and cost-effective business, which will bring added opportunities for ICT companies. The biotechnology sector is also expected to grow, with more biotech companies becoming operational after building their corporate infrastructure through the various grant mechanisms offered by the government and its agencies.

Going forward, MDV will seek to enhance the demand side of the ICT industry. It will be introducing a financing programme specifically for SMEs to leverage ICT to enhance their business model and strengthen their business and operations.

MDV hopes to continue to play its part in facilitating the development of the ICT and biotech industries, given the government’s incentives in Budget 2010, in particular the RM1.5 billion allocation for green technology companies and RM200 million for the Creative Industry Fund. With our technology project financing experience and infrastructure, we can further assist the government to meet the objectives of these initiatives.

Md Zubir Ansori Yahya is managing director of Malaysia Debt Ventures Bhd

This article appeared in netv@lue2.0, the technology section of The Edge Malaysia, Issue 787 Dec 28 - Jan 10 2010