ICICI Venture fund raising hits roadblock

Written by Reghu Balakrishnan | Mumbai | Updated: Jul 10 2009, 15:28pm hrs
ICICI Venture, Indias largest private equity firm, has run into difficulties in securing commitments from some key investors for the $841-million India Advantage Fund Series 2. The investors have said they were not informed about recent changes in the companys management and have, therefore, triggered a clause in their agreement allowing them to hold back their committed funds.

This key man clause, which is incorporated in the agreement between a fund manager and investors (also known as limited partners, or LPs), allows the latter to change their investment strategy if key management members or employees leave the fund in which they are investing. ICICI Venture already has a firm commitment for two-thirds of the funds financing, while the rest is under dispute. The company has over $2 billion in funds under management.

LPs are upset because the company did not inform them about the decision to allow the exit of Renuka Ramnath, who has led it since 2001. With LPs deciding to trigger the key man clause, they are not obliged to give the remaining 25% of the committed amount, said a person familiar with the development. Vishakha Mulye has replaced Ramnath as the new managing director & chief executive of the company.

According to a source close to the development, ICICI Venture held talks with LPs on June 30 to apprise them of recent developments. According to the documents, the key man has to be cured over a period of six to eight months by the supervisory board. (The company) is engaging with the LPs in this regard and would continue to do so over the next few months, he added. An e-mail sent to ICICI Venture did not elicit any response.

The LPs are already unhappy with the private equity firms handling of the recent issue with Subhiksha and the latest development will add grist to their mill. Apart from the IAF Series 2, ICICI Venture handles private equity funds such as IAF Series 1 ($267 million), ICICI Emerging Sector Fund ($692 million), IAF Real Estate Series 1 ($562 million) and IAF Mezzanine Series 1 ($51 million). ICICI Venture is learnt to be announcing the first closure of its India Advantage Fund 3, aiming to raise $1 billion.

One expert on the private equity industry said, Obviously, the LPs are displeased with ICICI Venture as Ramnath was the face of the company and LPs are uncertain about the competence of the new team to handle private equity funds. The LPs are likely to carry out due diligence on the new team prior to funding the committed amount.

Prior to joining ICICI Venture, Mulye was executive director at ICICI Lombard General Insurance from October 2007 and CFO at ICICI Bank in 2005-07. Ramnath had been the managing director & CEO of ICICI Venture since 2001 and had worked with the group for over 20 years. Ramnath plans to set up a fund with former colleague Sudhir Variyar, who worked with ICICI Venture for more than four years.

Recently, Azim Premji-owned Zash Investments sent a legal notice to the directors of Subhikshaincluding Ramnath, ICICI Venture joint managing director Rajeev Bakshi, and independent consultant Rama Bijapurkaraccusing them of not informing the firm of Subhikshas financial troubles. Last September, Zash bought a 10% stake in Subhiksha Trading Services for Rs 230 crore from ICICI Venture. The retail chain subsequently went bankrupt and its 1,600 nationwide outlets were shut.