The man responsible for taking IL&FS overseas, Shahzaad Dalal, is vice-chairman of one of the country’s largest private equity (PE) firms and the first to be listed, IL&FS Investment Managers. He has set up a hub in Dubai and shuttles between the emirate and India. Recently, the Saudi BinLadin Group bought a 20 per cent stake in Maytas Infra, where IL&FS replaced the Raju family (of Satyam) as promoter. In an interview with Arijit Barman and Raghavendra Kamath, Dalal talks about his company’s plans and strategy in West Asia. Excerpts:
Was your decision to move to Dubai a conscious one or because your funds have historic links with the Gulf?
It was for various reasons, including the fact that 85 per cent of our funds are raised outside India and we need to manage them from outside. Generally, we do not have partners outside. Also, having experience in a number of sectors in India, especially in infrastructure, we thought we could use that in the Middle East (West Asia). We thought taking our ideas, processes and corporations there was not a bad idea.
Do you plan to set up similar offices in other countries?
Our financial services group, which does a lot of advisory and syndication work, already has offices in Singapore and London. It will also open one in Dubai. For fund management, we are starting with Dubai and we have offices in Mauritius — that’s where our funds are coming through. And, over a period of time, we will see whether we can set up offices in other countries. Before the downturn, we looked at setting up an office in one of the western markets. Then, the slowdown happened.
Are you looking at infrastructure only for partnerships or also at other sectors?
I see more of an infra play, where we have core operating strengths. For instance, we do not have those strengths in running a media company. We are investors and we make money. That is fine. That is a fund manager perspective. But if you ask me how to run a media company, I don’ t have a clue. It would be difficult for us to do partnerships with a media company. But, if it requires introduction or ties, that can always be done. For instance, a lot of our portfolio companies may want us to introduce partners in the Middle East. We are happy to do that.
What are your fund-raising plans?
We are looking at raising a PE fund shortly. We would be in the market next month or so. It would be a generic PE fund. It will be $300 million to $400 million.
You have partnerships with Milestone for real estate and Standard Chartered for infrastructure. How does that pan out?
Partnerships make sense if both the partners derive some value. Milestone wanted to do yield products, which require a lot of operating experience like managing tenants, municipal approvals, taxation, and so on, on a regular basis. It’s not a fund management activity. It’s beyond that. Also because, at that time, foreign money was not allowed to be invested in ready assets. The logic behind the Standard Chartered JV is that we had fund management and infrastructure expertise in India. We wanted to see whether we could do something outside India. We wanted to attract Asian investors. We wanted to have a partner who is present in these countries, who knows the regulatory environment, knows people to close a transaction. Standard Chartered brought that. The fund is restricted to India, China and South Asia.
Earlier reports said you were also looking at exits from real estate projects. Can you elaborate?
We are exit-focused in our approach. Our funds have a limited life. Our investment horizon is between three and five years. In that time-frame, we definitely need to exit. So, a fund launched in 2006 is coming to an end. Obviously, we need to look out for where we can exit. For example, we exited DB Realty. We have lock-ins. But, after that, we can exit slowly and orderly.
How is the fund flow from international investors for infrastructure and real estate investments?
For infrastructure, there was very good traction. We closed our infrastructure fund last year, during the worst period of the slowdown. We closed at $658 million. We stopped raising further money because we did not want to waste time and closed at whatever we had. Real estate, too, has good traction. But some of the large real estate investments had been hit by the portfolio losses abroad. So, they had issues of enough money to invest here. We will not get aggressive in real estate this year. We may look at it next year.
So, real estate will not be a focus this year?
No. We have corpus left in real estate and I think we can do 10 more deals in real estate by the end of this financial year.
A lot of PE funds are doing very structured deals in real estate with cash-outs, deep water-fall structures and so on. You are among those few players who are still doing pure equity deals.
We do all kind of kinds. We are happy doing pure equity, we are happy with structured deals. What we do not do is pure structured deals only — get fixed returns, get out, like a debt transaction. Most of the people are doing that. We do not do that. Our capital is meant for equity. We do some structured deals with waterfall structures wherein we get protection, some cashflow back.
There are allegations that PE funds are extracting a lot from property developers. Do you agree?
There is no compulsion for them to do deals. We are not catching them.
A lot of fund managers plan to raise rupee funds. Why are you not doing it?
We may also do it. We are thinking about it. It is high-maintenance fund raising, as it requires a dedicated team and resources.
