Citigroup Venture Capital International (CVCI), Citi’s emerging markets private equity investment arm, will invest a fresh $1.5 billion in India over the next three years.
It will be the largest such infusion by a single private equity investor in the Indian market and outstrips the $1 billion allocations made by the Blackstone Group and Carlyle Group each in 2005.
The investments will be made out of CVCI’s global $4.5 billion Growth Partnership LP Fund II, which is slated to complete fund-raising in a few weeks.
In three years, CVCI’s exposure to India will jump three-fold from the $500 million it has invested here so far.
The move to up the ante in India follows the recent reorganization of Citi’s global alternative assets businesses, namely hedge funds, private equity and real estate development, under Citi Alternative Investments (CAI), led by former Morgan Stanley executive Vikram Pandit.
In India, private equity is currently the largest asset class under CAI. Deal sizes from the fresh fund allocation will range between $25 million and $250 million, said Ajay Relan, managing director of CVCI India.
“The overall theme for investments remains the same. We’ll back entrepreneurs across sectors with growth capital. In certain instances we may take controlling stakes but the bulk of our investments will be aimed at taking minority positions,” he said.
Citi arm Citigroup International Finance Corp. is an investor in HT Media Ltd, which publishes Mint, and Relan sits on the board of HT Media.
CVCI stepped up its investments in India in 2005 soon after the launch of its $1.7 billion Growth Partnership LP Fund I. This fund, incidentally, was the first independent PE fund that CVCI raised since it started operations as a private equity investor in 1996. The bulk of the $500 million it has invested in India so far came from Fund I. Investments prior to 2005 were made mostly out of proprietary funds from Citi.
As a result, while peers such as Warburg Pincus Llc., ChrysCapital Investment Advisors, ICICI Venture Funds Management Co. and Actis Capital Llp. already had upwards of $500 million deployed in India by 2005, CVCI was just starting out. Among its notable investments pre-2005 were I-Flex Solutions Ltd in Mumbai, Progeon Ltd (now known as Infosys BPO) in Bangalore and Polaris Software Lab Ltd in Chennai.
From the new fund, it will go after deals in cross-border outsourcing, consumer-driven industries, infrastructure and restructuring plays among others. Fund II also has a higher concentration of third-party investors, much like a traditional private equity fund—Citi has invested $1 billion while the rest has come from Citi employees and third-party investors.
In Fund I, Citi brought in $500 million of the $1.7 billion. As Relan puts it, “this is much more fun than proprietary balance sheet investing.”
CVCI’s track record on exits, though, has been on a par with peers.
It sold its 41% stake in I-Flex in 2005 for $593 million to Oracle Corp. (had invested less than $1 million in 1989) and 23% in Progeon to Infosys Technologies for $115.13 million (had invested $20 million in 2002). Relan says its gross IRR (internal rate of return) on overall emerging markets investments is 48%. Gross IRRs in developed markets such as the US and Europe have been at 10-20% for the last two years.
With investments in India now on the fast track, in three years, CVCI could emerge as a serious contender to the top slot in India’s private equity hierarchy, a position currently held by Warburg Pincus.