Mumbai: Reliance Private Equity, a unit of the Reliance-Anil Dhirubhai Ambani Group (R-Adag), has begun roadshows to raise Rs2,000 crore, with the option of increasing it by half, from domestic and international investors as it seeks funds to expand business.
The India-focused fund, Reliance Alternative Investments Fund-Private Equity Scheme 1, will focus on rapidly growing, emerging industries, Reliance Private Equity said in a presentation prepared for high net worth individuals.
Tough times: Reliance Private Equity, an R-Adag unit, is trying to raise funds at a time when investor appetite is low
Institutions and individuals can invest between Rs1 crore and Rs5 crore, with the option of exiting the fund after four years, according to a copy of the presentation reviewed by Mint. An R-Adag spokesperson declined to comment on this.
Reliance Private Equity will hold a so-called greenshoe option of Rs1,000 crore after raising the Rs2,000 crore, said a person familiar with the development who didn’t want to be named. A greenshoe option gives an entity the choice of retaining additional money if an issue is over-subscribed.
The fund, in which R-Adag promoter Anil Ambani will also invest a significant amount, will provide growth capital, buy out firms, purchase minority stakes and finance acquisitions. The investment ticket size will range between Rs125 crore and Rs375 crore.
Reliance Private Equity is trying to raise funds at a time when investor appetite is low amid the global economic slowdown.
“The year until June has been one of the toughest periods to raise funds by private equity investors,” said Jagannadham Thunuguntla, head of equity at New Delhi-based institutional investor SMC Capital Ltd. “The fund-raising has come to a standstill.”
The few funds that have managed to raise money in 2009 include India Value Fund, which raised $725 million (around Rs3,545 crore) in its fourth round, and The Carlyle Group, which raised $1.04 billion from its fourth Asian Growth Capital Fund to invest in India and China.
Thunuguntla said 2008 was better due to the carry-over effect from 2007. “Since fund-raising takes 14-18 months, the closures in early 2008 were of funds that had plans to raise money in 2007. So 2008 had a pipeline effect of 2007, but 2009 does not have a pipeline effect of 2008,” he said.
India-specific funds that raised $930 million in the first quarter of 2009 could raise less than one-tenth the amount in the second quarter. In 2008, $10.6 billion was raised by private equity funds.
According to research by Thomson Venture Economics, private equity has historically generated far superior returns compared with other asset classes. Between January 1997 and December 2008, returns from private equity in the US were 24.9% compared with 8.8% returns from investment in stocks and 6.2% in bonds.
India’s largest cellular service provider, Bharti Airtel Ltd, the Café Coffee Day retail coffee chain, Pantaloon Retail Ltd and wind energy firm Suzlon Energy Ltd are some of the Indian firms that have grown with private equity capital.
Unlike many other funds, Reliance Private Equity has an advantage because its affiliate Reliance Capital Ltd, the group’s listed financial services company, has a strong presence in the capital market and relationships with institutional and retail investors with businesses such as stock broking, mutual funds, consumer finance, mortgages and insurance.
Headed by Ramesh Venkat, a finance veteran who has worked with ANZ Grindlays Ltd and Vedanta Resources Plc, the fund will focus on six sectors—services, retail, logistics, media, infrastructure ancillaries, clinical research and healthcare.
Under current investment norms, a private equity fund cannot invest more than 30% of the total corpus in a single sector, 20% in companies outside India and 15% in a single company. The fund will invest a maximum 10% in R-Adag companies, along with external co-investors.
The Aditya Birla Group too is in the process of floating a private equity fund that will target local high net worth individuals and institutions. It will focus on health, media, retail and entertainment as well as consumer products. Tata Capital Ltd, the Tata group’s non-banking finance company, also has ambitious plans to launch multiple funds. Its first fund, with a corpus of $350-500 million, will focus on mid-cap companies.