CDC’s plans to invest more in India will see the firm increase the pace of direct investments, says CEO O’Donohoe
The CDC India portfolio currently stands at $1.7 billion across direct investments into companies and investments in private equity and venture capital funds
CDC Group Plc., the development finance institution of the UK government, plans to double its exposure to India with investments of up to $3-3.5 billion by 2021, senior executives said in an interaction.
The CDC India portfolio currently stands at $1.7 billion across direct investments into companies and investments in private equity and venture capital funds. CDC has backed several Indian private equity and venture capital fund managers to raise their maiden funds. The firm invests directly through both equity and debt.
“The Department for International Development (DFID) has announced $3.5 billion capital commitment to CDC, which will come in over the next three years. So, we know that our balance sheet, which today stands at about $6 billion, will probably rise to somewhere between $10-12 billion over the next three years, as a combination of new capital and, obviously, the returns on the capital that we have already got invested. And, I would expect 30% of that to be invested in India," said Nick O’Donohoe, chief executive officer, CDC.
CDC’s plans to invest more in India will see the firm increase the pace of direct investments, said O’Donohoe. “Presently, our portfolio is equally split between direct and indirect investments, but in terms of new money— the incremental dollars, it will be more heavily tilted towards direct investments via equity and debt," he added. Of the total investments, the fund committed $1,009 million directly to 14 companies and set aside $725 million for 293 indirect investments as of year ended 31 March 2019, compared to $859.6 million direct investments in 13 companies and $693 million for 280 indirect investments in the previous year.
The fund, with 30-35% of its overall portfolio dedicated to India, focuses on seven core sectors, including financial services, infrastructure, healthcare, affordable housing, food and agriculture, consumer and education, for direct investments.
CDC’s investments focus largely on the poorer states in the country, according to Srini Nagarajan, managing director and head of Asia, CDC India Advisers.
“For us, job creation is very important. We focus on the low-income parts of India, particularly the BIMARU states (Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh), north-eastern states, Telangana and Andhra Pradesh, which we call as the A and B category states. These are very crucial to us because most private investments don’t want to go there. And, we feel our kind of capital is very necessary in these states to have a much more catalytic effect," he added.
For its indirect investments, the firm plans to move away from large, generalist fund managers to specialized funds focused on impact, infrastructure and housing, among other areas. It has so far invested in 72 funds in India since its inception.
“I think when we look at our fund strategy today, it is much less of investing in the big funds in India, which is historically what we have done, and much more about investing in specialized funds," said O’Donohoe.
“In India, the places where we think we are likely to find specialized funds are infrastructure, food and agriculture, affordable housing and, possibly, healthcare. And then, there is a broader category of impact funds which we would also look at," he added.
CDC also provides venture capital to startups focused on the development theme. By 2021, O’Donohoe said, the fund plans to invest $30-35 million in venture funds in India. Of this, it has already committed around $16 million to two funds.
“As far as technology is concerned, it is the bedrock of most investments and, for us, fintech, healthcare and agri-tech are important areas of investments within technology," said Nagarajan. “Our technology investing will again be focused on how it can change the life of the common man and will not focus on selling it to the Silicon Valley market."
CDC’s total assets under management, globally, stood at $5,743 million as of fiscal year ended 31 March, largely in line with the $5,436 million it had invested in the year-ago period.