Mumbai: Private equity (PE) firm 3i India Pvt. Ltd, a unit of UK-based 3i Group Plc, aims to launch its second India infrastructure fund in 18 months, increase its growth capital investment and hopes to buy out a company in five years. The firm has so far invested around $920 million (Rs4,177 crore) in Indian companies. In a rare interview, 3i Group chief executive officer Michael Queen talks about his fund’s plans and how India will drive future profit growth. Edited excerpts:
Ever since you made your first investment in 2005, India has become attractive to PE firms. What keeps you bullish on India?
Bullish on India:Queen says there will be at least one additional area of investment in India, a buyout business or investment in listed stocks. Abhijit Bhatlekar/Mint
India always looked like it was better placed than other developing countries. There are a number of factors behind that. The banking system has come out of the crisis very well and the underlying economic growth is clearly a help, and I think the government has had a fundamentally consistent policy. That has given a great deal of confidence to companies to invest directly and for financial investors to come into the market. In the past couple of years, we have invested more in India than in the UK. I hope to invest three times more in India than any other country.
Have you set a target for investments in India?
You can set objectives on what you invest, but whether you are able to deliver that depends on a couple of things. Do you see interesting deals that are happening in the market? We are seeing that. The second thing is: Are the entrepreneurs prepared to allow us to invest at a sensible price? There has got to be opportunity and a sensible price to invest in.
There is risk if the market prices of the assets remain heated. Since last year, the pricing of assets has been extremely high and people tell me, why would anyone invest in Europe at all when you have such low growth in Europe and such high growth in India and China. If I accept that, surely all money should be going to India and China. But in Europe right now I can buy assets at very attractive prices.
You got to have the combination of the underlying opportunities and right pricing of the assets to make it a good investment. We are constantly balancing these two factors. We will slowly increase our investment.
3i was the first PE fund to focus on infrastructure in India.
When I came to India, I looked at what was happening and the absolute strategic priority for the country was to build infrastructure.?Also, what clearly resonated was the way the government was talking about creating an environment where the regulation was clear and there was long-term commitment to bring concessions around key infrastructure.
Many PE funds do PIPE (private investment in public enterprise) transactions in India. Would you like to dabble in such transactions?
Certainly. It’s a market that you have to be alert about because of the depth of the Indian stock market. So far, it’s not something that we have done but we certainly have got that on our radar. If we do it, it’s not something as simple as saying we will use our PE money to do that because the investors in our PE fund expect us to invest in unlisted companies. So we would need a separate pool of capital to actually invest in those deals.
With regards to growth capital, I think we have not achieved our full potential. The buyout market has not yet taken off in India. If you are an Indian entrepreneur, you are still looking to build new businesses and not sell. So I wouldn’t expect us to do any buyouts over the next five years.
Any plans to raise an India-dedicated fund?
We have deployed 50% of the $1.2 billion infrastructure fund. Over the course of the next one-and-a-half years, we expect to invest the rest, and then we will definitely be raising another India infrastructure fund.
How did you manage the global slowdown?
Looking back at the boom now, I think the margins at which we invested were too much at the top of the market and also, as an organization we were running with too much debt. Over a year ago, I was asked to step in probably because I was going to run the business in a much more conservative and boring way. We raised capital from our shareholders, sold off some of our non-core activities and reduced our debt dramatically.
We took it down from around $3 billion, when I took over, to which the analysts are suggesting will be about half a billion in March. We have also been conserving cash and building our cash reserves.
Give us a sense of your India portfolio in the next five years.
Whether it’s a buyout business or investment in listed stocks, there will be at least one additional area of investment in India. I hope 3i is seen as a natural part of the landscape in next five years.