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Why Ajay Relan is on to $700 mn India fund

Why Ajay Relan is on to $700 mn India fund
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First Published: Wed, Jul 30 2008. 11 16 AM IST

Entrepreneurial drive: Ajay Relan. Photograph: Harikrishna Katragadda / Mint
Entrepreneurial drive: Ajay Relan. Photograph: Harikrishna Katragadda / Mint
Updated: Wed, Jul 30 2008. 11 16 AM IST
New Delhi: Ajay Relan, for long the managing director and India head of Citi Venture Capital International (CVCI), the private equity business spun off from Citigroup Inc., has been bitten by the “entrepreneurial bug”. In his first media interview after stepping down from CVCI last fortnight, Relan discusses the new fund — of between $500-$750 million — that he is going to start, and why he is happy that it comes at a time when stocks at the Bombay Stock Exchange are not at near-25,000 levels. Edited excerpts:
What are your plans?
We are going to raise a private equity (PE) fund. There is me and Jayanta Basu (a former vice-president at CVCI India), who has been
a colleague of mine in CVCI since 2000. We parted ways by mutual agreement from Citi. Now, we are in the process of setting up a PE fund of our own and doing pretty much what we are good at doing, which is investing in growth capital. We will be opening our office shortly, around October.
How do you look back at your days in CVCI?
CVCI had invested in a wide range of sectors commencing from tech firms such as Polaris and i-Flex, and then it expanded its scope to BPO (business process outsourcing) firms such as Progeon (now Infosys BPO) and Daksh, and then moved to other sectors such as financial services. We didn’t stop there and became wider. Alongside, (the team) selectively invested in media, HT Media (publisher of Mint) is one example, and even the pharma sector. We invested
Entrepreneurial drive: Ajay Relan. Photograph: Harikrishna Katragadda / Mint
a lot in what I call ancillary services such as power infrastructure firms, water treatment, sewage and wind energy. It would be about $1 billion in investments over the last 24 months.
It is too early to talk about rate of returns, especially because the (stock) markets have been choppy. Some of these investments are listed, some are not, but it is a very high quality portfolio that CVCI has. (Since 1995), the most spectacular investment has been Suzlon in wind energy.
What were your reasons for leaving CVCI? There is speculation that a lot of people have left the company along with you.
I was very happy with Citi. Some of my best years have been spent at Citi. I think it was more of an entrepreneurial drive. Citi also invests globally, I wanted to stay very focused on India for the next few years. Primarily, it is a passion to see if one can replicate the success that he has seen as an employee of CVCI as an entrepreneur. And, it is just two of us, Jayanta and I.
Tell us more about the new fund you are going to launch, its corpus, the sectors in focus, the investors you are tapping and the timeline you are looking at for announcing your first investment.
We are in the process of putting our private placement memorandum together and contacting investors. Three to six months is the time frame for us to make our first investment, and the corpus could be anywhere between $500 million and $750 million. It will be an India-focused fund. We haven’t zeroed in on a name (for the fund) yet. The fund will have a standard structure and should be subscribed to by investors overseas, primarily institutional entities such as insurance companies, sovereign funds, endowments and pension funds. Some of them are based in Singapore, Hong Kong; some of them have offices in London, New York and San Francisco.
In terms of sectors, financial services overall still looks good. Selectively, technology will also remain important. I think ancillary infrastructure has a long way to go. Media and entertainment, if we can find the right company in that, remains attractive as well. We will like to invest in companies which have pricing power, barriers to entry, some embedded competitive advantage and market leadership. Now, these can come across a slew of sectors. We will stay away from those sectors that will take some time acquiring these characteristics. I think textiles will have a tough time.
How do you see the prospects for an India-focused fund in the times of rising inflation, choppy markets and fears of an industrial downturn?
Whenever you see volatility of this kind and some degree of choppiness, some sectors benefit and some suffer. More importantly, we have seen this volatility from time to time in the Indian market. So, having been in the business for 13-14 years, this is not something that is scary. I don’t think India’s ride is going to be one smooth upward slope, and sometimes the bumps that come along may represent a wonderful opportunity. That’s why we are wedded to the PE business because it is a longer term business that rides over these moments of volatility. I would probably be more afraid to start this venture if the markets were at 25,000...
Ajay Relan is an independent director on the board of HT Media Ltd, the publisher of Mint
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First Published: Wed, Jul 30 2008. 11 16 AM IST