Private equity major 3i Group is scripting a debt funding story in India as it looks to build a $1-billion business over the next three to five years by lending to Indian tier II and tier III corporates. 3i Debt Management, the debt arm, is intending to launch an India-dedicated fund "soon," a top official said.

The debt foray follows the Group's recent acquisition of London-based Mizuho Investment Management (UK) Limited (MIM), the 100% subsidiary of Japanese banking major Mizuho Corporate Bank.

The deal with Mizuho will add a third business line to 3i Group's operations in India. The PE firm currently has growth capital and infrastructure practice in India with a $1.2-billion dedicated fund for the core sector. It also had a buyout team in India, which was merged with the infrastructure practice due to lack of control deals and more opportunities in the core sector.

The India dedicated debt fund will look at investments between $15 million and $25 million with tenors of up to five years. It will typically target companies across all sectors with revenues of up to $700 million and EBITDA (earnings before interest, taxes, depreciation, and amortization) of over $15 million-$20 million. The fund would invest through the non-banking financial company (NBFC) route.

3i Group last month agreed to buy MIM, which has $6 billion (£3.7 billion) of third party assets under management, in a $29-million deal. The deal also brought along MIM founder and CEO Jeremy Ghose and his team of around 30 people to 3i. Ghose will now become the managing partner and CEO of 3i Debt Management besides joining 3i's leadership team. Ghose was also on the board of Mizuho having the distinction of becoming the first non-Japanese to join a Japanese bank's main board.

"Because of the global capital constraints on corporate banks, MIM has been studying particularly the Indian market for the past 18 months and there is an opportunity to lend second and third tier companies in the country," said Sanjay Kohli (in pic), Director and head of India, Middle East and Africa for MIM. Kohli will take charge of Global Investors and drive the global debt funds, including India, SE Asia, Middle East and China for 3i Debt management.

Kohli, who had been with Mizuho Corporate Bank for a decade, said, the fund would look at investing in senior and subordinated debt of Indian corporates.

3i Debt would also look at partnering with private equity funds in the country for investments. "We have a long standing relationship with the global private equity community. We have been supporting PE sponsors globally for the last decade and would also be looking to invest in private equity led  transactions in India," said Kohli, who has also worked with Credit Lyonnais (now Calyon) and Bank of Tokyo Mitsubishi (now Mitsubishi UFJ).

Mizuho Investment Management is one of the largest bank-owned debt managers and has raised eight funds totalling over $6.4 billion (£4.0 billion). These include five collateralised loan obligation (CLO) funds, a mezzanine debt fund and a fund of funds.

While most global private equity majors have opened India offices, only Kohlberg Kravis Roberts & Company (KKR) has been active in the debt segment. The PE firm, which has incorprated an NBFC called Multiflow Financial Services Private Ltd, has invested in promoter group entities of Max India (Analjit Singh) and JSW Steel (Sajjan Jindal).

Other global PE majors active in India like Blackstone, Apollo Management, Bain Capital, Carlyle, TPG Capital also have debt arms globally.

ICICI Venture, PE arm of ICICI Bank, raised the first mezzanine fund at $51 million in 2007, which has made three investments till now.

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