ICICI Venture, which is in the process of raising a fund that will make private equity investments in infrastructure projects, is firm that it will not put in money in projects that bear a “permitting risk” – or ones that face risks associated with regulatory approvals.

It will also not invest in early-stage greenfield infrastructure projects. This is part of the investment strategy chalked out for the fund by ICICI Venture.

As part of the fund-raising for the infrastructure fund, ICICI Venture has so far got commitment of about $260 million, out of a proposed $600 million.

“The only thing we will not do is early-stage, greenfield projects,” Vishakha Mulye, Managing Director and CEO, ICICI Venture Funds Management Co Ltd, told Business Line in Mumbai recently.

The infrastructure fund, she explained, had a limited life – it is a 10-year close-ended fund – and it had committed to its investors to return their monies in 10 years. “In an infrastructure project, our experience has shown that most of the time, we have lost money because the project gets delayed. And these delays are sometimes beyond the sponsor’s control. They get delayed because of regulatory approvals,” she said.

Risk in infrastructure

Most of the risk in infrastructure is towards implementation. Therefore, ICICI Venture will look at projects that are nearing completion, as “at least then those risks are crystallised.” “You would know,” said Mulye, “what those risks are. You would be able to price the asset much better than walking through unknown territory.”

“We believe there are lots of such assets which are available and therefore we will look at investing in them, either completed or at an advanced stage of completion,” said Mulye, articulating ICICI Venture’s strategy for its infrastructure fund.

Completed assets provide cash flow and a project nearing completion will give it an equity kicker in the growth phase. “If it is a good quality infrastructure asset, by and large you should be able to make money, provided you have priced the asset correctly,” she said.

ICICI Venture would typically invest between $50 million and $100 million (Rs 275-550 crore) for a 10-24 per cent stake in the projects. It has not yet invested in any project, but has taken some to the next level of diligence in terms of visiting the projects.

According to Mulye, ICICI Venture will look at a combination of mezzanine financing and private equity investment in infrastructure projects. Given the uncertainties in the infrastructure sector, valuations also are a lot more realistic now than what they were a couple of years back.

ICICI Venture right now has three verticals – private equity, mezzanine financing and real estate. It has added a new vertical – special situations – that will invest in stressed and distressed assets in India through an alliance with Apollo Global Management of the US. The special situations fund is reported to have got a first close of about $325 million, out of a proposed raising of $500 million. With the infra fund and the special situations fund, it will have over $2 billion under management.

Focus on realty biz

On the real estate business, Mulye said that it would look more at residential projects in large cities. “Our view is that there is an over-supply of both retail and commercial, but there is good opportunity on the residential side in pockets. Particularly in large cities, there is a good potential for somebody to make good returns,” she said.

The private equity fund would invest in growth-stage companies and is sector agnostic. It has three funds on the PE side and is now investing out of the third fund. ICICI Venture is bullish about sectors such as healthcare, education, consumer related businesses, infrastructure services, financial services and pharmaceutical.

It will look at asset-light businesses and invest about Rs 125-150 crore in the companies, for a significant minority stake.

>ramakrishnan.n@thehindu.co.in

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