Currency Risk, sometimes referred to as exchange rate risk, is the possibility that currency depreciation will negatively affect the value of one’s assets, investments, and their related interest and dividend payment streams, especially those securities denominated in foreign currency. [source: https://www.forextraders.com/forex-education/forex-glossary/what-is-currency-risk/]
As the Nepalese currency is peg with Indian currency. Over the past 10 years, the average depreciation per annum is about 2.92%. Based on this Nepalese currency depreciate at 3% per annum compared to Euro.
Impact of investments is measured by the opportunity for economic growth. There are three important impact indicators: 1. value of trade that the company creates with the base of the pyramid (BoP) – poorest socio-economic group; 2. number of BoP employees trained by and engaged in the company (e.g. factory worker) 3. value of enhanced goods sold to the BoP (e.g. Solar Lights) On portfolio average, for every €100.000 invested capital One to Watch economically impacts 50 families.
European investors such as Summit Hotel, FMO, Triodos Bank, TeliaSonera and Carlsberg had joint venture companies in Nepal with repatriate-able capital. The shares in Summit Hotel were sold in 2013 and the income was repatriated to the shareholders in the Netherlands. The other investors still receive a yearly dividend from their investments in Nepal. The Nepali FDI law is clear on exits and even offers a favorable tax scheme. It is important to understand that investments can only go out in the way it has come in. For both entrée and repatriation there are a few bureaucratic hurdles to overcome. One to Watch has systems and checks in place to navigate the investments through this bureaucracy.
Most investments are structured as straight equity or a combination between equity and preferential shares of equity and loans. For every investment, One to Watch will create a Special Purchase Vehicle (SPV) in the Netherlands that holds the shares and /or loans in the Nepali company. Shares in the SPV can be sold or taken over by existing or new investors.
One to Watch aims to exit through founder share buyback or trade sales to a new investor or financial institute. As most investments enter at an early stage in the company and the performance picks up slowly in developing countries, One to Watch expects to add value through relevant expertise and technology in 5 to 7 years and exit afterwards.
Connection with companies in Nepal is predominantly built through connectors and social networks. One to Watch has been engaging in entrepreneurial networks since 2010. At the launch of Rockstart Impact in 2014, One to Watch combined a rich network with easy, accessible acceleration and institutional branding. Today, One to Watch is sourcing high quality deals from both its network and from Rockstart Impact program.
The core of One to Watch’ s monitoring system is a professional administration team that supports investees by reporting their monthly performance. Our team has been introducing accounting software and conducting training for admin personnel at portfolio companies. One to Watch reports financial updates for all the portfolio companies on quarterly basis.
