3i is among the handful of large private equity (PE) players that have continued to hold on to infrastructure investments. With close to $600 million invested in India from its $1.2-billion India Infrastructure Fund, Anil Ahuja, head of 3i Asia, is confident of not only investing the rest soon, but also raising a similar-sized fund. In an interview with Shivani Shinde and Shilpy Sinha, he speaks about increased push for infrastructure investment and an aggressive interest to invest in sectors such as media and healthcare. Excerpts.
Recently, the road transport and highways minister went on a road show to attract investment in road projects. Considering the Government of India (GoI) prediction of $500 billion investment into infrastructure, is there a need for more participation from PE players?
There is still room for investment. If you look any of the numbers — either the GoI number of $500 billion or Goldman Sach’s $1.7 trillion — you will still need $100 billion or more. This will be part-debt and equity. Some can come from capital markets or promoter groups (who we think are a bit stretched). The capital market can give a couple of billions, even then there is a limit that they can bring. If you look at PE players in India, there are just five or six meaningful infrastructure-dedicated funds. And the total fund size will be slightly over $5 billion. So, we get capped off at half of what the country needs.
...so what is stopping PE players from coming to India?
People are going to watch how some of us have performed. Even for us, a lot of queries will get answered once we hit the markets to raise our second fund. We will hit the road in the next 12 months. It should be a sizeable fund. It will be at least of this size. I think compared to our last fund, which we raised in 10 weeks, this might take some more time.
Do you think insurance and pension fund players should be allowed to invest in this sector due to huge demand and it also suits their long-term investment strategy?
From an equity investment perspective, I think our regulators have been cautious and they are right in my view. I don’t think the volatility that comes with the market is good for pension and insurance investment. If they invest for a small amount, it is fine. I don’t think it should be an open season.
Considering you have a growth fund as well, which sectors are you interested in and what’s your take on valuations?
Other than infrastructure, media, healthcare and technology, the financial sector interests us. In terms of valuation, media is still realistic. I think media growth has been underestimated. We have investment in Nimbuzz, UFO Movies and OOH Media.
Valuations have been fair even in the financial sector. We did see some stuff in the financial sector last year, but things did not work out. This year is going to be a good year. You will see some announcements in other sectors as well.
3i does have a focused buyout strategy. But we have not seen much in India?
Buyouts happen either because promoters want to exit out of the business or need to get away from non-core businesses. Buyout happened in the Western countries for the first reason, as growth in some of the sectors was in single digit. But, the game in India is different. I think the IT sector is interesting for buyouts for us and not for growth.
Considering you will hit the road to raise funds, how have expectations of limited partners (LPs) changed in a year’s time?
One thing that has changed is that people expect you to stick to what you told them. During the boom time, everybody was getting into anything that was good. But LPs are now much more strict about where you put the money. You will see majority of investment in UN-listed firms this year. Those who want to invest now in listed firms would have to raise funds with a clear indication as to where they want to invest.
What will be your focus in 2010 in terms of investment?
We would want to continue to invest in our investee firms even as we look at new investments. Rather we are strengthening our relations with some large sponsored groups. (3i has invested in Soma, Adani Group and Hyderabad-based Navayuga Group). As long as they are good, there is little reason for them to go anywhere in terms of raising funds.
