Tamil Nadu-based VIT University, which is also popularly known as Vellore Institute of Technology, has hit the fund-raising trail as it looks to expand its upcoming campus in Chennai.  The 26-year-old private university is looking to raise up to Rs 600 crore through a mix of equity and debt, said sources familiar with the development.

VIT has been in the market to raise Rs 400 crore in debt and possibly Rs 200 crore through equity. A few PE funds have held discussions with the university, which will, however, go ahead with an equity fund-raising only if an agreeable deal structure is worked out.

VIT's Chennai campus, for which it is actively scouting funds, is coming over an area of 150 acres and is expected to be operational by 2012. VIT plans to spend around Rs 300 crore on this campus and the rest would be for expansion of its existing campus at Vellore. VCCircle learns that Ernst & Young has been mandated by VIT to raise equity and debt.

Education undoubtedly remains a red hot sector for the private equity industry but its interest is more skewed towards select opportunities in coaching institutes, vocational training and pre-school niches.The funds have shied away from making large commitments in the K-12 and university space mainly on account of regulatory constraints and deal structuring problems.

While some of these entities in mainstream education are looking at big-ticket fund-raising to absorb the tremendous growth opportunities, the structuring of these deals may not be easy as most Indian deemed universities (and their assets) are owned by not-for-profit trusts.This could mean that foreign players (including strategic players and overseas private equity firms) may be buying into hived off management  operations of the Indian deemed universities while all the hard assets stay with the trust.

Now with the Union Cabinet approving The Foreign Educational Institution (Regulation of Entry and Operation) Bill, 2010 (now awaiting final clearance from the Parliament), it could open up opportunities for  entities like VIT to attract strategic investors in the short-to-medium term.

Sources privy with the development said,VIT is planning to hive off the Chennai campus into a different special  purpose vehicle (SPV) to raise funding. However, this might not be attractive enough for PE investors, who would like to include the flagship Vellore campus as part of any deal.

Several foreign for-profit global university networks like Apollo Global (a JV between Nasdaq-listed Apollo Group and private equity giant Carlyle), Laureate International Universities and DeVry Inc are eyeing acquisitions to take part in the India education story as the country prepares to open this sector.

VIT was founded in 1984 as a self-financing institution originally called the Vellore Engineering College. It is headed by its founder and Chancellor, G. Viswanathan, who was a former parliamentarian and minister in the Tamil Nadu State Government. In 2001, Ministry of  Human Resource Development gave Vellore Engineering College the deemed university status.

Emails sent to VIT Chancellor Dr. G. Viswanathan and Vice Chancellor Dr. D. P. Kothari did not elicit a response at the time of publication of this article.

VIT University has more than 15,000 students and with faculty in excess of 1,600. It currently offers 15 undergraduate and 31 postgraduate courses. This is in addition to full-time/part-time    research degrees in Ph.D. and M.S. (by research) in engineering and management disciplines and Ph.D. and M.Phil. in sciences and languages.

This entire education sector market size in India stands at $86.2 billion, of which $43.2 billion comes from the annual private spend, according to a note from Kaizen Management Advisors, which is an education-focused private equity firm. Of the private spend, higher education constitutes the second largest spend (after K-12) at $10 billion, with a market growing at a 12% CAGR.

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