After stopping fresh private equity and buyout investments in India, 3i Group plc plans to stop infrastructure investments in the country. London-listed 3i Infrastructure, an affiliate of the 3i Group plc and anchor investor in the 3i India Infrastructure Fund, said that it would make no new investments in India.
The firm also said in its results that “3i Group, which through 3i Investments, manages the India fund, suspended new fundraising in this market.” It further added that “the team’s focus would be on preparing the India fund’s investments for sale in a challenging market.”
The development comes after 3i India Infrastructure Fund, which raised $1.2 billion corpus in 2008, completed its investment period in November 2012. 3i Group was in the market to raise a second India infrastructure fund, but now seems to have called that off.
In February 2013, the firm saw the departure of its managing partner Anil Ahuja and partner Girish Baliga. Interestingly, both of them looked after the infra fund. The UK-based PE firm had named Samir Palod as managing director and country head.
With this development, the PE firm will be now looking to manage and exit its investments in the coming years while it won’t make any fresh investment.
“It is concluded that the company (3i Infrastructure) would make no new investments in India and would focus its future investment activity in core infrastructure and PPP in developed markets, in particular in the UK and continental Europe. Over time, as the investments in the India fund are gradually realised, the portfolio will rebalance in favour of less volatile investments in core infrastructure and primary social infrastructure in Europe,” a statement said.
A 3i Group spokesperson told VCCircle that the PE firm would not shut its India office and the team would focus on managing and realising the existing portfolio.
“Having reached the end of its investment period, the fund is no longer able to make new investments, and the current portfolio is going to be sold over a period of a number of years. Our team based in India is, therefore, focused on managing the fund’s investments to maximise value for all limited partners, and will work towards selling the fund’s investments over the next few years,” the spokesperson said.
3i Infrastructure has a commitment of $250 million towards the India Infrastructure Fund, of which 15 per cent or $37.5 million remains and is unlikely to be called. The fund raised the remaining amount from third party limited partners.
The fund has invested in seven assets – three in the power sector (Adani Power, Ind-Barath Utkal & GVK Energy), three in the roads segment (KMC, Supreme Infrastructure BOT Holdings and Soma) and one in port (Krishnapatnam).
Why 3i Infrastructure is shutting India investments
3i India Infrastructure Fund was valued at 0.8x cost in US dollar terms and 1.0x cost in rupee terms as of March 31, 2013. “Rather than enhancing overall returns, the investment in the India fund has introduced an element of volatility to overall portfolio valuations, despite the strong performance of its social and core infrastructure portfolios,” the statement said.
It further said, “While the case for infrastructure development in India remains unaltered, private infrastructure investment in India has faced more political, market and macroeconomic challenges than we expected when we initially made our commitment to the India fund in 2007. Our investment in the India fund has not been immune to those challenges and, as a result, has suffered significant valuation volatility and has not delivered the premium returns we anticipated. In turn, this has introduced an element of volatility to the total return. The India fund reached the end of its investment period in November 2012 and the board decided that, as the fund’s assets are gradually realised, the company will not redeploy the proceeds in India.”
The company currently invests in hybrid infrastructure through its $250 million commitment to the $1.2 billion India fund, managed by the investment adviser through a dedicated team in India.
The rationale for this commitment, made in 2007, was that it would provide exposure to a diversified portfolio of early-stage infrastructure investments in India, expected to deliver gross returns of around 20 per cent through the fund’s life but with a higher risk profile (construction risk and country/geopolitical risk).
(Edited by Sanghamitra Mandal)