Malaysia Venture Capital Management Bhd (Mavcap) may not be able to meet its second instalment of debt obligations of RM100 million with its parent, Minister of Finance Inc (MoF), next year.

Mavcap chairman Datuk Abdul Samad Alias said that as such, its board and management hoped to convert part of the RM500 million loan that had been disbursed to it by MoF since 2001 towards spearheading the development of the country's venture capital (VC) industry.

"Ideally, Mavcap's funds should be restructured with a grant to loan ratio of 50:50," he told The Edge Financial Daily yesterday.

He said the outlook for meeting the second instalment next year was in doubt. "The market conditions are not favourable at the moment," he said.

Abdul Samad said discussions were ongoing and MoF board members were sympathetic but there was no timeframe to conclude the talks.

"As we are not a purely commercial VC but also have national developmental obligations where we take on the risky pre-seed and seed stage investments, we would like the seed and pre-seed investments to be considered grants, while the less commercially risky late stage investments will remain as loans," he said.

Speaking to reporters earlier at the launch of Mavcap's Outsource Partner II programme (OPP2) here yesterday, Abdul Samad said Mavcap had repaid the first installment of RM100 million last month. The repayment was sans interest, which will be paid later.

Samad also defended Mavcap's investment track record during the past six years saying that it had made decent returns despite not being a purely commercial VC firm.

He declined to disclose its exact rate of return on investment but said that it invested in success stories such as Jobstreet Corporation Bhd, e-Pay Asia Ltd, Mems Technology Bhd and UnrealMind Interactive Bhd. It had also written off 17 investments worth RM35 million.

OPP2 saw three companies officially announced as Mavcap's outsource partners – Ethos Capital One Sdn Bhd (ECO), Expedient Equity Two Sdn Bhd (EET) and DTA-Plato Capital Sdn Bhd (DTAP).

The latter two were partners under the first outsource partner programme while the former is a new private equity firm.

ECO received a RM30 million commitment from Mavcap which boosts its fund size to RM90.9 million, while EET and DTAP received RM25 million each.

Samad said ECO received a larger commitment, because it had greatly exceeded the RM5 million minimum threshold of matching funds.

ECO expects to raise its fund size to RM200 million by end- 2007 from GLCs, local and foreign financial institutions, and high net worth individuals.