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Mumbai: The Oman India Joint Investment Fund (OIJIF) will be raising about $350 million for a new fund, two people close to the development said.

OIJIF, a equal joint venture between State Bank of India (SBI) and State General Reserve Fund (SGRF), will start raising money from December. SGRF is Oman’s sovereign wealth fund.

Formed in 2010, OIJIF started with a corpus of $100 million. The fund has made five investments since 2011. Its current investments include National Commodity and Derivatives Exchange Ltd, ING Vysya Bank Ltd and Solar Explosives Ltd.

Srinath S., chief executive at OIJIF, declined to comment on the fund size, but said the new fund will be “substantially larger" than the first. So far, 70% of the first fund has been invested.

“We are pretty confident that we will finish investing the remaining amount by September after which we may raise another fund significantly larger than the first one," said Srinath in an emailed response.

The new fund will invest in sectors such as single-brand retail, specialty chemicals, pharmaceuticals and industrials. The average ticket size will be about $15 million.

The initial agreement signed between SBI and SGRF allows the corpus to be expanded to as much as $1.5 billion, depending upon the experience of the first fund. The agreement also allows a deployment period of up to four years.

“Since the initial corpus has been quite small given our deployment period of four years, we have been able to cherry pick the companies," Srinath said.

Experts, however, say difficult economic conditions have led to the slower deployment of money. “Sovereign funds may take time to find good investments. However, Oman and India have had good relations. Hence, there will be continued interest from the country to invest in India," said Avinash Gupta, head of financial advisory and senior director at Deloitte Touche Tohmatsu India Pvt. Ltd, a consultancy.

In 2012-13, bilateral trade between India and Oman stood at $4.55 billion, official data show. India is the third largest market for Oman’s exports and the largest for non-oil exports.

OIJIF will gradually increase the corpus as the fund gains more experience in India. “Any fund which is raising money will not straightaway commit to a big amount like $1.5 billion. So they will essentially raise funds in tranches after gauging the success, which is exactly what OIJIF is doing. It is difficult to deploy such a large corpus at one go," said Harish H.V., a partner at Grant Thornton India, an advisory firm.

India has been garnering a lot of interest from foreign pension and sovereign funds. Unlike private equity firms, sovereign funds can stay invested for a longer duration. OIJIF can remain invested for more than 10 years.

A Reserve Bank of India panel set up to review governance of bank boards has also suggested that sovereign funds can help alleviate stress in the Indian banking system. If a bank is identified as distressed, private equity and sovereign wealth funds should be permitted to take a controlling stake of up to 40%, the panel suggested.

Some of the other sovereign funds investing in India include Government of Singapore Investment Corp. (GIC), Singapore’s Temasek Holdings (Pvt.) Ltd, Abu Dhabi’s Mubadala Development Co. and the Abu Dhabi Investment Council.

Most funds from West Asia are yet to invest directly into India on a large scale, said Harish. “India has not seen huge investments coming from the Middle Eastern countries directly, although there is a lot of scope for that. These countries generally route their investments via funds in the West."

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