Mumbai: For private equity (PE) arms of big Indian corporations, fund-raising, such as charity, seems to be beginning at home.
The Reliance-Anil Dhirubhai Ambani Group (R-Adag) will invest Rs400 crore in a PE fund being floated by group company Reliance Capital Ltd. This will include a contribution from R-Adag chairman Anil Ambani, a senior official of the group said.
Similarly, Aditya Birla Group chairman Kumar Mangalam Birla will invest around Rs300 crore in the group’s PE fund.
New interest: Aditya Birla Group chairman Kumar Mangalam Birla will invest around Rs300 crore in the group’s private equity fund. Rahul Gajjar/HT
The R-Adag PE fund may raise Rs2,000 crore while the Aditya Birla Group’s PE fund will have a corpus of about Rs1,500 crore.
“We will raise anywhere between Rs1,500 crore and Rs2,000 crore and our group will contribute 20% of the total fund,” a senior R-Adag official told Mint. Ambani will be the main individual investor, or anchor investor, in industry parlance.
In an interview with Mint, Ajay Srinivasan, chief executive (financial services) and director (corporate strategy and business development) at the Aditya Birla Group, said the group’s promoter will chip in at least 20% of the corpus as an anchor investor. The size of the fund is yet to be fixed, he added.
“We took time to put the team (that will manage the fund) together. We now have a team in place. It’s important to build credibility and track record. Now the process of raising the first fund is on. We will grow with the momentum of the businesses we set up,” Srinivasan said.
The R-Adag official said, “We have received commitments from several investors”, but declined to disclose either the names or the commitments made by these investors.
Ramesh Venkat, R-Adag’s financial officer, is the CEO of the PE fund.
For Ambani, this is not his first investment in his individual capacity. He had recently announced an investment of $325 million (around Rs1,580 crore today) in Steven Spielberg’s DreamWorks SKG, a film production firm.
Both R-Adag and the Aditya Birla Group run full service financial services businesses, from stock broking to insurance. Their entry into PE is strategic and to fill in certain gaps in the financial services portfolio.
“It is not mandatory for the promoter to contribute to the fund,” said Suhail Nathani, partner at Economic Laws Practice, a legal firm that advises clients on tax, PE, infrastructure, international trade and litigation. “The promoter’s contribution shows the credibility and commitment to the private equity fund.”
Some of the world’s leading PE funds have been operating in India, but local funds enjoy certain advantages over international ones as the latter cannot invest in every sector because of government restrictions.
Besides, their investment always comes in the form of pure equity risk capital while domestic funds can choose instruments such as optionally convertible preference shares that can be converted to equity at a later stage, Nathani, who specializes in PE and international trade, said.
But everybody is not excited about Indian industrial houses’ plans to float such funds. Luis Miranda, president and CEO of IDFC Private Equity that manages $1.3 billion, is one of them. “It’s going to be tough. There have been few others who have looked at private equity at various points of time and it did not make sense,” he said.
Miranda, who has been investing since 2002 in infrastructure companies, said, “It’s a people’s business and is not much about the organization behind you. Managers should have the freedom to operate and ability to manage conflict.”
Srinivasan, former Asia CEO (fund management) at Prudential Corporation Asia, joined the Aditya Birla Group in July 2007 with a mandate to identify emerging opportunities in financial services. He is driving the PE business.
“There are no numbers. We are in the process of raising money and we are talking to probable investors,” he said.
According to him, the fund will target local high networth investors and institutions. “We will focus on three or four specific areas in health, media, retail, entertainment as well as consumer products, and anything related to infrastructure that leads to consumption,” said Srinivasan.
Tata Capital Ltd, the Tata group’s non-banking finance company, also has ambitious plans to enter PE.
Shailendra Bhandari, who was driving Tata Capital’s PE initiative, has recently quit, but the firm is committed to launch multiple funds. Its first fund, with a corpus of $350-500 million, will focus on mid-cap companies.
The Nicholas Piramal group, owned by Ajay Piramal, is yet another entrant in this space. In 2007, the group joined hands with A.K. Purwar, former State Bank of India chairman, and floated a $200 million PE fund. The fund intends to invest 50% of the corpus in the healthcare segment such as hospitals, speciality clinics, healthcare related information technology and business process outsourcing facilities, besides manufacturing and research equipment.