The global meltdown has sent UK-based 3i Group Plc’s debt-equity ratio to a high of 50 per cent from its targeted 30 per cent. While the group has cut its global headcount by about 15 per cent, Anil Ahuja, head of the company's Asian operations, tells Rajesh Bhayani and Kalpana Pathak that 3i remains bullish on India and has even set aside about $1 billion (Rs 5,100 crore) for investments in the country within the next three years.
3i was recently downgraded for its debt position? Your comments…
Standard & Poor’s recently cut 3i’s debt rating from A- to BBB+ before warning that it could make further cuts if the debt burden is not reduced. That is the reason for the downgrade of 3i Group. Our targeted debt-equity ratio is 30 per cent, and we are now at 50 per cent.
As a management, we don’t want our debt-equity ratio to be so high and there has been an attempt to bring that down. However, the ratio is much better than our peers in the industry. Also, we recently bought out one of our listed funds – Quoted Private Equity (QPE).
Given that 3i is a recent entrant, will this impact your business in India? How is your business doing here?
We run three business lines in India with funds like Growth, Infrastructure and Buyout. While Growth Fund is funded by our own money, the Infra one is India’s largest infrastructure fund, and is concentrated on the power and transportation sectors. We formed the fund in April 2008, and we have investments of over Rs 700 crore available.
We are studying some proposals right now for investing this money in the next two years. Recently, we sealed a deal worth $161 million (nearly Rs 830 crore) in Andhra Pradesh-based Krishnapatnam Port Company – its third infrastructure investment in the nation. 3i has invested more than $2 billion (Rs 10,200 crore) in Asia since 2006.
Buyout is a $7-billion (Rs 36,000-crore) global fund, with investments from Euro Fund V currently. There is no limit on how much we can invest in India. Let me say that we are optimistic about buy-out deals if the deals and the valuations are right. We would be buying control in companies. Also, we’re in no hurry to exit from any of our deals as our investments were made recently.
Isn’t this a tough time for PEs?
The scene is very bad. Actually, at the industry level, the whole private equity system is in turmoil today. There are only a few exceptions, because almost all kinds of players in the private equity investment chain have been experiencing disputes of some kind or the other.
Companies have a disconnection with PE funds on valuation grounds. Their expectations are higher, and market realities don’t support that. PE funds have their problems too with their own investors, known as limited partners (LPs). Funds face difficulties in ensuring that LPs fulfil their commitments for putting in more funds as earlier investments have incurred losses on a marked-to-market basis.
In addition to all this, LPs themselves are facing problems in the form of criticism from their investors who are the ultimate beneficiaries. The criticisms are related to losses or lower returns.
So, from all those who are concerned with this industry, there are disconnects on returns, expectations and market realities.
If that is the case, will we see some deals by 3i's funds?
We do have some deals on hand in the manufacturing or industrial sector, and we are working on them. We did look at technology but, so far, it has not materialised. Our total fund size is over $1 billion (Rs 5,100 crore) in India. We will have to invest it till April 2012, but we can do it much before that time period.
How much funds are available with the group today?
Over the last five years, the group has retained in excess of £2 billion (over Rs 14,500 crore) in the form of dividends and share buybacks. As every company runs a certain gearing ratio (which refers to the owner's contribution to borrowed funds), we have a substantial amount of our own money with which we start funds and where we make a significant contribution, or we start listed companies with significant investments.
Even our repayment schedule is quite relaxed, so there is no urgency to repay any money. We have around 800 million pounds (Rs 5,800 crore) of cash, or cash-equivalent. Between now and September 2010, we have to repay 100 million pounds (Rs 725 crore).
