Thursday 20 October 2011

PE giant 3i to raise $1.5 billion for 2nd India fund

MUMBAI: 3i, Europe's biggest listed private equity firm, plans to raise up to $1.5 billion for its second India fund, but its investment choice will widen tohealthcare and education from infrastructure as the sector is plagued by policy paralysis, a senior executive said.

3i, which has multiplied its investments in companies such as Adani Power and Mundra Port and Special Economic Zone from its $1.2-billion fund, has shifted focus to non-infrastructure investments with many companies struggling to sort out issues such as fuel supply and land for building projects. "We will broaden our focus with the second fund," said group chief executive Michael Queen told ET in an interview.

"The biggest concern among our investors is whether India would continue to sustain the political momentum seen in the recent past," he said. "In a democracy, there are a lot of internal battles, among various departments and ministries.

It happens in the US also. But it's vital that a balance is maintained," he said, referring to environment ministry's moves to cancel projects. Charges of corruption and graft on various ministers and slowing of decisions on crucial projects have also added to the risks.

India needs an investment of over $1 trillion to build roads, ports and airports which will perk up slowing growth in Asia's third largest economy, a World Economic Forum report said. While most of the investment in infrastructure will be through state-aided funds or publicprivate-partnerships, large private equity firms are also beginning to invest in the space. SBI-Macquarie, Blackstone, ICICI Venture, Actis and IDFC are some of the firms that have so far invested in India's core sector.

Private equity investments have also slowed to $2.25 billion in the quarter ending September which is lower than the $2.36 billion invested last year, data from Venture Intelligence shows. In the first nine months, private equity investments totalled $8.6 billion, across 317 transactions. Furthermore, tight global liquidity conditions may delay the time taken to close the second fund.

"Fund-raising has become extremely difficult as investors are choosy," said Queen. "You need to have a lot of patience and a good track record to be able to raise money in this kind of an environment. It's one of the toughest I've ever seen," said the 25-year veteran at the UKbased private equity major.

Slowing of economies in the US and Europe, where a majority of 3i's investors are located, and volatile capital markets have made conditions for lending risky. Research firm Prequin said fund-raising by private equity firms worldwide has fallen 46% in the July-September quarter.

But emerging economies like India and China are good alternatives with growth still above 8% and so much to be built. "The first fund targeted roads, power, ports and airports. In the second fund, we will look at railroads, water supplies, waste water treatment plants, and in infrastructure for education and healthcare," he said.

No comments:

Post a Comment