Private Equity Helps Transform Businesses in the Kyrgyz Republic

March 29, 2022

For 15 years, clothes maker Cool Bro's has been producing casual wear for neighboring countries.

Based in the Kyrgyz Republic, the company has 1,500 employees and churns out 20 million shirts, pants, jackets and undergarments a year.

While Cool Bro's is one the country's largest garment manufacturers, founder Suimonkul Joldubaev has long harboured ambitions to attract institutional investors and expand the company’s operations.

To do that, he recently welcomed a $1.5 million equity investment from the Highland Capital Fund, a private equity vehicle in the Kyrgyz Republic. The partnership brought an influx of capital and expertise, and helped Cool Bro’s receive the certification it needs to export abroad.

Signing ceremony of a financing agreement between Highland Capital Fund and Cool Bro’s. Photo: Courtesy of Highland Capital Fund

“We see Highland Capital Fund as a smart money investor,” said Joldubaev. “It’s experience in developing corporate governance practices and management systems coupled with our expertise will significantly accelerate the development of Cool Bro’s.”

Aspiring companies like Cool Bro’s are exactly why IFC invested $8 million in the Highland Capital Fund in 2018. IFC’s investment included a co-investment from the International Development Association Private Sector Window, which funds projects in emerging markets often considered risky by other investors.

The deal was designed to stoke the growth of small and medium enterprises (SMEs) in the Kyrgyz Republic, where many entrepreneurs struggle to access capital.

“Highland Capital Fund has already become an important source of alternative financing and has the potential to further create markets and opportunities for financing SMEs in the Kyrgyz Republic," said Cassandra Colbert, IFC Regional Manager for Central Asia.

The fund provides equity investments of between $1 million and $3 million to smaller businesses in sectors like agribusiness, healthcare, education, and telecommunications.

The funding is considered crucial in the Kyrgyz Republic. SMEs employ 60 percent of workers and produce 40 percent of gross domestic product. But the steep collateral requirements of many banks, which dominate Kyrgyz financial markets, make it challenging for entrepreneurs to secure loans. Private equity funds have the potential to step into the financing void while also guiding entrepreneurs as they grow their businesses and expand into new markets.

A woman working in a garment factory in Kyrgyz Republic..
More than 90% of the employees are women in the Kyrgyz garment sector.  Photo: Courtesy of Highland Capital Fund

IFC is one of the world’s largest investors in emerging-market funds. Its portfolio includes $7.9 billion invested in 384 growth equity, venture capital, and seed funds, and approximately $1 billion in direct and co-investments.

The support for Highland Capital Fund was part of a broader IFC effort to spur the development of the private sector in Central Asia, where many economies are dominated by the state.

"Through its support of local emerging fund managers such as Highland Capital Fund, IFC is also supporting the development of the private equity industry in the Kyrgyz Republic and in turn across the wider Central Asia region,” said IFC’s Colbert.

The Highland Capital Fund has focused on the clothing sector, whose exports have jumped nearly 200 percent since 2014. The industry has grown into a key part of the Kyrgyz economy; in 2019, an estimated 200,000 people worked in the garment manufacturing sector, more than 8 percent of the labour force.

But this number shrank by over 70 percent due to the COVID-19 pandemic. The industry has been hit by production shutdowns, reduced orders, and problems with supply chains.

Cool Bro's was not immune to those problems.

Joldubaev said the financing from Highland Capital Fund helped the firm resolve financing issues, allowing it to focus on ramping up sales.

“The garment sector is one of the priority sectors of the economy of the Kyrgyz Republic,” said Cholponbek Jumashukurov, Managing Partner of Highland Capital. "We are excited to partner with Cool Bro’s and support its rapid growth, which will affect the development of the industry as a whole.”

In 2021, Cool Bro’s received Standard 100 certification, which ensures that textiles don't contain any substances harmful to people, key to exporting to Europe. The firm is now looking for partners on the continent and Joldubaev said he’s excited about what’s to come.

Published in March 2022