India Rizing Fund, a first of its kind venture fund for small and medium enterprises (SMEs) making defence equipment, has received the approval from FIPB and the government to kick off its plans to raise Rs 550 crore with subscriptions from foreign investors.
The Mumbai-based fund, which is promoted by the former director and India head (specialist finance) at ANZ Investment Bank, Rajesh Narayan, plans to raise $100 million (Rs 400 crore) initially, keeping provisions to scale up investments by $200 million (Rs 800 crore). It has a 10-year duration, with an option to increase it by four more years.
“Our first closing is likely to be in October and the final closing by December this year,” Mr Narayan told ET. More such funds may be created in the future for investment into the Indian defence production sector. The fund is close to tying up with about six foreign investors in their bid to raise money.
“India is one of the largest defence markets in the world and now with the sector opening up, it presents immense possibilities for foreign investors seeking a foothold in the industry. The existing production capacity, mainly with the PSUs, large private players and the ordinance factories, is inadequate to meet the requirements of Indian armed forces and the offset opportunity. There is a need to create a broad-base ecosystem of companies,” Mr Narayan added.
India Rizing Fund is the first and the only Sebi-registered fund dedicated to investing in Indian Defence SMEs and R&D. Investment would be made in SMEs that are vendors for these products.
Many SMEs supply components, technology and designs for such products. Investment focus as per defence scheme is 90% of corpus in defence SMEs and 10% of corpus in defence R&D.
The move comes at a time when multinationals are vying for multi-billion dollar defence deals from the Indian government, which also includes mega orders for fighter aircraft.
The proposed scheme will offer two categories of units of par value of Rs 10 lakh each to investors and Rs 100 each for promoters and management of the company. Funds from the scheme will be invested in niche areas of defence production which include tanks, aircraft and war gaming simulators, as well as radars, military aircraft, missile launch systems and howitzer guns.
Advisors to India Rizing Fund include Rana Kapoor, founder and MD of Yes Bank, Rahul Chowdhary, CEO, Tata Strategic Electronics, Lt Gen VJ Sundaram, leader, flight vehicle design team of Prithvi missile, and former RBI deputy governor Vepa Kamesam.
According to industry estimates, there are around 6,000 SMEs registered with a Defence Ministry arm contributing extensively to projects like the Light Combat Aircraft and Arjun Main battle tank.
Experts point out that with India planning to acquire multi-role combat aircraft (MRCA), SMEs can benefit from the offset obligation of such a defence deal, under which, the selected aircraft manufacturer has to source 50% of the components from India.
Indian defence SMEs are also expected to benefit from a government target of sourcing 70% of defence requirements from indigenous sources by 2010.
Source: Economic Times