ICICI Venture vows to steer clear of new core projects like greenfield infra

MUMBAI: The country's largest private equity fund, ICICI Venture, will stay away from greenfield infrastructure projects due to long delays and roadblocks caused by multiple government clearances. It's an assurance the fund is giving to sceptic international investors as it tries to raise money in a difficult market.

Global investors parking a slice of their portfolios with VCs and private equity (PE) funds have turned more demanding in recent times and want a clearer idea of how the money is being invested by asset managers. Also, Indian PE houses have to make an extra effort to convince these investors, better known as limited partners (LPs), who are enamoured by the timely exits they could make in China.

"ICICI Venture is in the midst of fund-raising. They are clear that they would focus on brownfield projects, or at best late greenfield projects, where all approvals are in place. That's the thesis of the fund, and it's understandable in the current environment," said a banker.

TOP DEVELOPERS IDENTIFIED

The PE fund, which aims to raise up to $750 million, has possibly identified top 50-60 developers in sectors such as roads, ports, power and airports for investments. Many of the asset-heavy projects with moderate cash flows are in need of equity infusion, according to financial market sources.

ICICI Venture Managing Director & CEO Vishakha Mulye was not available for comments. Despite comparatively lower returns from brownfield projects, offshore LPs are more comfortable if asset managers pick these for investments. While the return from such projects is around 20-23% as against over 25% generated by private equity players, risks arising from bureaucratic delays are minimal.

Close to $100 billion, of which 30% would be equity, has flown into infrastructure in the past 10 years. Many of these projects are up and running and some are close to completion. According to sources, ICICI Venture is in an advanced stage of negotiations with one of the business groups that has developed toll roads and is close to completing its power projects for an investment of around $100 million.

"Since most of the money in India was raised during 2005-07 and a lot of the investments took place at the peak of 2007, not many exits have been impressive. That's why LPs end up comparing with China where money was raised earlier and many exits happened during the bull run," said a fund manager.

Thanks to a tight money market and general risk-aversion, many PE funds are lowering the fee charged to investors, from the usual level of 2% to 1.75% or 1.5%, even if the profit-sharing formula is kept unchanged. Typically, the funds have a life of seven years and can be extended by two more years at the option of LPs.

Internationally, some of the large LPs, eager to have greater control over their money, are preferring asset managers who run different kinds of funds to develop a more concentrated relationship.

Source: EconomicTimes