IFC will invest $1 bn in India this year as it sees opportunities

Written by Baiju Kalesh | Shruti Ambavat | Updated: Apr 5 2012, 09:04am hrs
The World Banks investment arm International Finance Corporation (IFC) has been investing in India for over 60 years, helping companies with capital and debt and advising states and the Centre on investments in building power plants, bridges, ports and financial services. IFC, which now advises Indias low-income states like Rajasthan, Orissa, Meghalaya and Bihar, said it will invest $20 million in Pragati India Fund, which will focus on investing in small and medium comapnies in these states. IFCs South Asia director Thomas S Davenport says it will invest $1 billion in India despite policy challenges and regulatory constraints. IFC, which had invested in Indias first ultra mega power project in Mundra, is also keen on investing anywhere between 15% and 20% of the $1-billion infrastructure fund it plans to raise in few months in Indian companies. Davenport spoke to FEs Baiju Kalesh and Shruti Ambavat on the way ahead. Excerpts:

The political environment is a concern for many investors. How did IFCs strategy change over the years

IFC has been in the market since the late 1950s and we have developed very strong relationships with a lot of the blue chips over time. Our role is to have a developmental impact and target markets that are new and emerging.

It is typical of many PE firms, so how is your strategy different

We have a significant risk appetite to make sensible investments. We are here for the long term. We have a responsibility towards shareholders and governments and we are catering to it. Two years ago, we defined our strategy, which focuses on infrastructure, renewable energy, financial inclusion and global integration. These are part of our advisory strategy as well. In the advisory, we work on investment market as well as private public participation projects.

India slashed its growth rate and several policy issues are hampering investments. Your view

One shouldnt ignore the fact that India is still looking at above 7% growth. We are still very optimistic and positive in select sectors. We are going to invest $1 billion in India this year and have a very promising pipeline for next year as well. We are still seeing lot of good investment opportunities in this market.

Which are the sectors you will look to invest in

We see good opportunities in power distribution and transmission and renewable energy.We are looking at a ports project right now. We also have strong environmental social standards, so we need companies to live up to those standards. Despite risks in the market, we see several opportunities in India.

How much have you invested in India so far

Our portfolio is around $3.6 billion across asset classes. We are comfortable with the track record in this market.

There were enough constraints in building Tata Powers Mundra power plant, like rising coal prices. What is your outlook on the project

We have invested $450 million in the company and can stay invested for as long as 18 years as the tenure of the loan is of that duration.

Where are the opportunities across your portfolio

We see opportunities in the renewable sector. We also want to get active in healthcare. We have had good investments in Max India and Apollo Hospitals. We are keen on moving to tier II and tier III markets because larger ones have enough investors. The challenge is to get the price points high enough to make it viable.

Education is another sector where you see good traction.

That is why we invested in Kaizen last year because we like the sector.

In the next two years, how do you see the mix of your business in India, which has advisory, fund of funds and direct invest

The advisory business is growing extremely well. We see huge demand for it. We are working on a PPP basis in Rajasthan, Orissa, Bihar and Meghalaya. We see great potential to develop new market opportutnities. On the investment side too, our balance is well placed. Investing in Pragati was also just one avenue of going into low-income states further.

Could you throw some light on the investment in Pragati

Pragati India Fund will focus on SMEs in low-income states. It will provide growth capital to start-ups outside major urban centres, creating jobs and promoting inclusive growth. SMEs typically receive only 5% of all the PE capital, forcing them to rely on high-cost borrowing. Pragati will change that.

Which states have you identified as low-income states

Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal.

What are the challenges for PE firms

Policy and regulatory stability is one of the challenges. We are working with states in improving their licensing requirement and other facilities.

Is debt easy to come for promoters

More than 80% of our investment is debt and on the equity side, we time our markets well. We look at companies for longer tenures, seven-eight years. We have a strong partnership record.

Could you elaborate on the policy and regulatory constraints

I think land is the fundamental issue in the low-income states.

Are you looking at increasing the employee count in India

The count has increased by 25% from last year and will continue to grow at a similar rate.