Vishakha Mulye, who recently took over as managing director and chief executive officer of India’s largest private equity (PE) fund, ICICI Venture, is a newcomer to private equity, but not to to the world of investments. A career banker who joined ICICI group in 1993, Mulye has occupied various roles in treasury, structured products and insurance. She was the chief financial officer of ICICI Bank Ltd, the country’s second-largest lender, from 2005 to 2007, during which she was responsible for raising close to $7 billion in equity capital and debt financing for the bank.
Mulye, who has replaced Renuka Ramnath as head of ICICI Venture, is putting a new organisational structure in place with a mix of new and old faces at the PE firm. She is also in the process of making the first close of a $500 million fund. In an interview with VCCircle's Sahad P.V., Mulye says ICICI Venture may look at starting another real estate fund and an infrastructure fund. Edited excerpts:
Even though you have been a career banker, you are an outsider to private equity. What was your first reaction when you were offered the top job at ICICI Venture?
From private equity point of view, I may be an outsider, but I had been in investment business (the past 16 years as a banker) all along. I started as a corporate banker, and then moved on to head treasury including proprietary trading. So I have done investments both on debt as well on the public equity sides. So investment is not really a new thing and it's not that I am doing this for the first time.
There are three or four skills which are important (for a PE fund manager). One is the fund raising aspect, and meeting the expectations of investors (limited partners in funds). During my tenure as CFO at ICICI Bank, there were two large issuances in equity markets - a $1.8 billion issuance in 2005 and a $5 billion issue in 2007, which were the largest from India then. They were simultaneous issuances in three markets - India, Japan and US – a first by an Indian company. I have also done number of issuances on debt side. Besides, ICICI Bank is listed in international market and we have investors from across the globe. So that piece of experience will come in handy.
Second is the investing skill, which I am not new to as I was a corporate banker. One also needs to know structuring an investment in PE. I have headed the structure finance group at ICICI where we work with clients and provide customised solutions. The third is adding value to the investee companies. During my last one year tenure at ICICI Lombard, we were required to understand the business of the companies in detail in order to offer solutions. Besides, at ICICI Bank, I was responsible for exits of the bank’s investments. We had an investment in National Stock Exchange. When we divested that stake, we ran a process, worked with government, and regulatory bodies. We have done several such exits.
What is your strategy for ICICI Venture?
We have three main practices - private equity, real estate and mezannine. Private equity has a $1.6-billion corpus and is the largest practice. We have a $550-million fund for real estate, and a Rs-200 crore mezannine fund. My aim is to take these funds to the next level. We have just launched a $500-million private equity fund with about Rs 1,500 crore green shoe options. We have already got commitments of over $200 million from domestic institutions and high net worth individuals for this fund. The idea is to do the first closing with the domestic money, and then on the back of this we would go to international markets. We may make our first close by October end. There are challenges in international markets, however, the money is available in pockets.
What would be your investment focus?
First, we are chasing three opportunities for our PE fund. One is participating in the transition process of small and medium companies to large enterprises as India is set to grow at 8.5-9%. Second is the soft infrastructure opportunities such as education, logistics and cold storage companies. The third is to look at opportunities where many diversified corporates are selling their non-core assets especially in the wake of the economic crisis.
We are also exploring if we can quickly come up with a real estate fund as the current one is fully invested. We have also hired two senior people for real estate. Over the last year, real estate prices (residential) have become much more realistic. There are also opportunities on the distressed real estate side. We are also seriously exploring an infrastructure-focused fund. It is still on the drawing board. We are looking to hire a head for infrastructure fund.
Even though mezannine fund (a combination of equity and debt) is an excellent opportunity, we have to wait and watch. It's equity-like risk. But there are specific investors interested in this and there is a huge demand in international market. But, because of guidelines in India on the debt side, we cannot raise international money.
How does your portfolio look now?
These are challenging times. I would say it's a mixed bag. We have divested over 60% of our holdings in Fund I. We already have 60% IRR on that that, and the remaining 40% is yet to be divested. There are some funds which are below par in terms of net asset value. But they are not mature yet and are still in the investment mode. So the exits are still far away. If you look at the performance of our fund vis-a-vis others, I would want to believe that we are better.
What are the biggest challenges in ICICI Venture?
I am five months old here. Putting an organisational structure in place has been completed on the private equity side. We are in the process of doing the same for the real estate and infrastructure practices. On the portfolio side, I met all investee companies in the first month itself. We know exactly the view on each of these companies, the strategy and how to unlock value. The third piece is to get the future business of the firm going, which is planning and launching new funds. We have already launched a private equity fund, and are planning infrastructure and real estate funds.
One major baggage you have got is Subhiksha. How are you tackling it?
It's part of the game. Few companies would do extremely well, while a few would be laggards. I would call Subhiksha a laggard. We have exited a part of it. We look to work with everyone to come out with a win-win solution.
How many companies you see exiting in the next few months?
Our Fund I is in exit mode. There are 10 companies that have to be exited over the next two years. We have already exited one of them, Vetnex, where we got fantastic multiples. Vetnex was a great deal. Somebody like Pfizer buying it is a testimony that we have done something good in the company and have created value. Fund I was expected to get over by October 2009. But we have just got extension for two more years. You will see some exits in the next few months.
What about your healthcare initiatives such as I-Ven Medicare?
I-Ven Medicare – a special funding vehicle to invest in hospitals – will drive common branding, common practices, and try to bring economies of scale such as a large organised hospital chain (like Apollo Hospitals) will do. The idea is to make this an interesting proposition for a strategic sale, or an IPO for our exit.
I-Ven has invested Rs 200 crore in four hospitals. The idea was to create beds under management under I-Ven Medicare, which will be a holding company. Currently we have 750-1,000 beds under management. We have plans to take it to 1,500 to 2,000 beds. We have created a roll-up model by buying stakes in these four hospitals, taking the beds under management to a respectable number. It's at a stage, where we are acquiring the assets, setting up processes etc. This investment is done from Fund II, and it’s still in the nurturing mode.
Are you looking at similar roll-up models in other spaces?
We can have similar models in pharmacy chains, microfinance and so on. The financial sector looks very interesting as there is a geographical concentration. For instance, MFI tends to be concentrated in particular states or cities. So there is a potential for a roll-up model in that space.
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